Our news team at RealWealth loves to hear about the latest high-tech solution to real world problems, and there’s a new one for homebuyers who need help with a down payment. It’s a pilot program that’s based on the crowdfunding concept, along with buyer education, and the generosity of those who want to help out.
CMG Financial out of San Ramon, California, launched this new service with a website called HomeFundMe. It provides a way for prospective homebuyers to raise money for a down payment among family, friends, colleagues, and community members. And, there are no fees. HomeFundMe says, “100% of the funds raised go to the recipient.” In other words, the money is considered a “gift” with no investment return for donors.
CMG Financial CEO Christopher George said in a press release, “The down payment tends to be the largest hurdle in the home buying process, and we’ve developed a solution to help remove that barrier.” He says, “Buyers are able to utilize their own community and network of family and friends to increase the amount they have available for a down payment.”
Donors can contribute up to $7,500 toward a person’s down payment. The buyer can also receive matching funds from HomeFundMe with limits. For someone earning less than the median income for the area, the program will provide two dollars for every one dollar the buyer raises up to $2,500. If that person makes more than the median, the limit for matching funds it $1,000. So that’s an additional $5,000 or $2,000 depending on your income level.
There’s also a requirement for buyers to get counseling about the responsibilities of homeownership. It would be provided by an outside agency, but CMG would cover the cost. Buyers would also have to be pre-qualified, and would obviously have to get their loan with CMG. The drawback to that last detail is that buyers wouldn’t be able to “shop around” for the best rate. They would get what CMG offers, which may turn out to be a perfectly good rate. Buyers would also have a chance to review any rates with a loan officer before they agree to anything.
Donors would have the option of making their contributions “conditional” on the purchase of a home. If the buyer doesn’t go through with the purchase in one year’s time, any conditional donations would be returned. Chief Marketing Officer for CMG Financial, Paul Akinmade, was cited by MarketWatch as saying, “That way the person doesn’t just take the money to Cabo and not buy a house.”
The HomeFundMe site also has links to wedding registries and other platforms so a request for help can be combined with a major life event. And, the buyer can contribute to his or her own fund, which could be a great way to show potential donors that you have also invested some of your own money.
Skin in the Game
Even if the borrower puts down a small amount, it’s a good show of intention, and may help ease the concern of skeptics. Ten-X Executive Vice President Rick Sharga said in a CNBC article, “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.”
He also expressed support for the crowdfunding platform. He said in the article, “If crowdfunding is a way to augment a down payment or to make a bigger down payment than you could make yourself, because then it will keep your monthly payments down or it will help you qualify for a loan that you might not have gotten without the crowdfunding, I could see the benefits of that.”
Other crowdfunding platforms could potentially provide the same results. GoFundMe is a popular one for any kind of money-raising campaign. There are also platforms that are designed for real estate such as “Feather the Nest.” Both of those platforms charge fees. According to MarketWatch, they take a 5% cut on the money raised, and they charge a processing fee of 2.9% plus 30 cents a donation — which all adds up. But they also provide alternatives, along with wedding registry sites like “HoneyFund.”
Fannie & Freddie
HomeFundMe has the backing of Fannie Mae and Freddie Mac which are calling it a “pilot project.” Jonathan Lawless of Fannie Mae says, “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.” He says they prefer to “source ideas from all sorts of different places.” The two government-sponsored enterprises say they will be reviewing the results of this new program.