Goodbye, Saving. Why Not Crowdfund Your Down Payment Instead?

Written by Jaymi Naciri Posted On Wednesday, 18 July 2018 11:30

You can crowdfund your medical expenses. You can crowdfund your honeymoon. And now you can crowdfund your down payment. Savings, shmavings.

Seriously, though. For people who are having trouble coming up with a down payment or just need a boost, HomeFundMe is a Godsend. Provided through California mortgage bank CMG Financial, HomeFundMe is helping people realize the dream of homeownership by eliminating what, for many, is the biggest barrier.

The idea of crowdfunding a down payment is not totally new, but cooperation with Fannie Mae and Freddie Mac, which signed off on the program, has smoothed out potential wrinkles for both buyers and donors. "HomeFundMe is approved by Fannie Mae and Freddie Mac as a down payment crowdfunding platform because it allows for a fully transparent and verifiable crowdfunding effort," said Mortgage Orb.

How it works is:

Buyers first get prequalified, as they would to kick off any homebuying process. This will give them an idea of how much they need for a down payment. "Borrowers typically aim to raise 3 percent of the purchase price, which is the minimum down payment for conventional mortgages bought by Fannie Mae and Freddie Mac," said Benzinga. "Donors can give as much as $7,500. For contributions of $500 or more, donors must sign a gift letter." DocuSign can be used to make that process easier.

Crowdfunding works on the power of social networking, as we've seen with popular platforms like GoFundMe and Kickstarter, so the program recommends connecting user accounts to Facebook and actively sharing. "Write a summary of your goals and publish updates to share your story," said HomeFundMe. "Upload images that help others get to know you or even showcase your dream home. You also have the option to film and share an ‘Intro' video. We recommend adding visual content like images and video to give potential contributors a better idea of who you are and what you are trying to do." HomeFundMe also assigns each buyer a fundraising coach who can help maximize their social outreach.

Once a HomeFundMe campaign is active, the clock starts ticking. Once buyers receive their first gift, they have 12 months to close on their home and use their funds. Gifts can come from anyone - friends, family, strangers, even Realtors. "HomeFundMe has partnered with wedding registries so couples can ask for down payment assistance rather than flatware and dishes," said Benzinga. "The site also opens the door to Realtors rebating some of their commission for down payments, a practice that's normally prohibited. A "variance" from Fannie and Freddie "allows Realtors to divert part of their fee to the buyer's down payment."

In addition, HomeFundMe has launched Affinity Portal, "a new program allowing employers to add HomeFundMe to their benefit packages to assist employees in overcoming the down payment obstacle," said Mortgage Orb. "The HomeFundMe Affinity Portal allows employers to add HomeFundMe to their benefit packages, with the option to elect to match donations in any amount."

Borrowers taking part in the HomeFundMe program can earn more than their goal amount, and donors can also make their gifts "conditional," so their funds are returned should the home purchase not occur within the 12 months. Also, there are no fees on contributions and no charges for payment processing; by comparison; GoFundMe charges a 2.9 percent payment processing fee.

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