Clients have been crowdfunding business, charity and vacations, now they can crowdfund their home purchase.
According to a report by CNBC, mortgage lender CMG Financial recently debuted HomeFundMe, the first online platform that allows borrowers to crowdfund the down payment on a home purchase without fees and with the backing of mortgage giants Fannie Mae and Freddie Mac.
With an increasing number of millennials looking to become homeowners but scraping to save for a down payment amid student debt, Christopher George, CEO of CMG Financial and vice chairman of the Mortgage Bankers Association, said the new product makes sense.
“This allows you to tell your story. It allows for folks to be able to buy into the story of what it is you have, your loan story, your home story. Our tag line is, ‘Fund your way home.’ We think homeownership still is very sensible and, done correctly, is a good idea to step forward toward wealth, stability and quality of life.”
Down payment assistance traditionally has been limited to aid from close family members, employers, community nonprofits and their churches, all with significant documentation. Lenders wanted to make sure people weren’t borrowing money for a down payment, adding to debt and decreasing the chances they could make the monthly mortgage payments.
If a client uses this method, they can attend credit education courses and counseling, making them eligible to receive grants of up to $2,500 once they’ve completed the free classes. After that, George noted that the platform will match donations at $2 for every $1 raised, up to $2,500.
“Folks that go to counseling tend to be more informed, and they also tend to be better borrowers. We’ve looked at this as advertising dollars and have said, listen we think this promotes homeownership, we think it’s something that we would otherwise spend either through the internet or through social media. We’ve put our money here where we think it has its best use.”
Moreover, contributors are also assured that the money will in fact go to fund the home purchase and can make their gift conditional on that.
Jonathan Lawless of Fannie Mae calls it a “pilot project,” and will be watching the results closely.
“What we’re doing today is we’re trying to test and learn a variety of solutions because the preferences for today’s homebuyers 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. 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.”
The proposal isn’t without detractors. Rick Sharga, executive vice president at Ten-X, an online real estate sales and auction company, noted that that if a client can’t save enough for a down payment in the first place, then they probably shouldn’t be buying the house.
“I have qualms with anybody getting a loan who can’t put some down payment down themselves. Those types of borrowers typically are one water heater away from missing their payments, going into default, maybe losing the house to foreclosure.”