Just when I think I’ve heard it all….now comes “crowdfunding” to help with the expense of purchasing a home. Yup…
Some desperate home buyers who aren’t able to save enough for a down payment are turning to crowdfunding. And mortgage lenders are making it easier for buyers to do so. CMG Financial, a mortgage provider, launched HomeFundMe, an online platform to allow borrowers to crowdfund the down payment of a home purchase without fees. The crowdfunding platform also has the backing of mortgage finance giants Fannie Mae and Freddie Mac.
According to a recent article in Real Estate News, saving for the down payment has remained a big obstacle for first-time buyers. High levels of student loan debt, costly rent, and underemployment during the recession has zapped their savings.
Borrowers can receive down payment assistance from family members, employers, and acquaintances, but lenders have required significant documentation about the financial gifts. Lenders want to make sure borrowers are receiving the down payment as a gift and are not required to repay the funds. Lenders also want to ensure that borrowers are still able to comfortably make the monthly mortgage payments.
CMG Financial’s crowdfunding platform does not offer a return on investment like most business crowdfunding platforms do. The money donated is considered a gift. Christopher George, CEO of CMG Financial and vice chairman of the Mortgage Bankers Association, says that many of the gifts will likely be smaller, in between $50 to $250. The platform can be added to wedding and baby registries.
“You’re going to spend $250 on a coffee-making machine? If that $250 goes to a down payment of your home, at the very least, I improve your quality of life and the second thing I do is I give you some tax deductibility,” George told CNBC.
Hmmm….the more things change…the more things change.
“What we’re doing today is we’re trying to test and learn a variety of solutions because the preferences for today’s home buyers have changed significantly, and there is no silver bullet to solving a problem that’s as hard as how do you find a down payment,” says Jonathan Lawless of Fannie Mae. “What we prefer to do is source ideas from all sorts of different places. Our customers are a major one, lenders who are dealing every day with people trying to buy homes, and instead of trying to take those ideas and spend three years trying to roll out a major change, we’d rather test and learn.” This is Fannie Mae-speak for: “If a couple can’t afford to purchase a home then let’s keep finding ways to get them in a home anyway!”
But some in the housing industry are cautious about home buyers who may use such platforms to earn their entire down payment from gifts and donations.
“I have qualms with anybody getting a loan who can’t put some down payment down themselves,” says Rick Sharga, executive vice president at Ten-X, an online real estate sales and auction company. “Those types of borrowers typically are one water heater away from missing their payments, going into default, maybe losing the house to foreclosure.”
I guess the moral to this story is don’t be surprised if you get an email from your neighbor’s kid asking you to donate a little something toward their goal of buying a home that they can’t afford to buy. The Times They Are A Changin’… Back soon.