When it came time for Armand Lebrilla and Stephanie Cuellar to compile their wedding registry, their first thought was, “We don’t need any of this stuff.”
After living together in a Los Angeles apartment for a year before their August 2018 wedding, they realized they already owned all the trappings that make up a typical wedding registry: dinnerware, towels, cutting boards. What they didn’t have, though, was their own home to shelter the goods. So they created an account with Honeyfund, a registry site designed to help couples fundraise for their honeymoon. But instead of requesting cash for a lavish vacation, Lebrilla, 31, and Cuellar, 32, said the money would go toward a down payment on their first home together.
“An average starter home or condo in our area starts at $500K,” Lebrilla said in an email. “So in order to avoid mortgage insurance, we have a goal of a $100K down payment. In an ideal world, 100 percent of that down payment would be crowdfunded. Realistically, we will try to make up most of it ourselves.”
Lebrilla and Cuellar didn’t reach their $100,000 goal, though they said the money they did receive did wonders to pad their savings. Home ownership is still a few years off, but they’ve already compiled a wish-list of domestic features: in-unit laundry, parking for two, close to restaurants. If not for the decision to focus their wedding registry on fundraising, Lebrilla said, they probably wouldn’t be in the financial position to buy at any point in the near future. “I think it would be hard to find a reason to give to a crowdfund without a big event like a wedding or charitable fundraiser.”
Since the 2008 financial crisis, homeownership’s barrier to entry has become impossibly high for many, especially younger people. According to real estate and rental platform Zillow, nearly 200 U.S. cities—many in states like California, New York, and New Jersey—have a median home value of $1 million or more, and that number is growing. Coupled with the burden of student loan debt, many would-be first-time homebuyers are turning to alternative options to finance a down payment. In addition to Honeyfund, platforms like Homefundit, Feather the Nest, and even GoFundMe are being used to crowdfund a down payment, giving potential homeowners a chance to build a nest egg.
“We know that desire for homeownership is high,” said Danielle Hale, chief economist at Realtor.com, “and anything that helps young people achieve that dream in a healthy and sustainable way is likely to catch on.”
Real estate broker Beth Butler recognized the challenges aspiring homeowners face in 2013, when she founded Feather the Nest with the goal of helping users crowdfund for various projects, like a kitchen renovation. Quickly, many of the site’s campaign “nests” were for down payment fundraising missions.
Feather the Nest isn’t associated with a specific mortgage lender, so site users have freedom to decide where to seek a loan. Users do not have to set and reach a specific financial goal in order to access the funds, though Feather the Nest takes a 5 percent cut on every donation. GoFundMe and Honeyfund are free to use, however both platforms charge a nearly 3 percent payment processing fee, plus $0.30 per donation; since the services aren’t explicitly for down payment crowdfunding, users are on their own when it comes to mortgage lenders. HomeFundIt does not charge transaction fees.
Butler said because the money is collected online, and therefore leaves a digital paper trail, the risk level for crowdfunders is low. “We have reached out and had conversations with lending institutions around this because the funds are trackable,” Butler said. “They’re coming through a third-party source. If you are somebody who has gone through a site like this, you have a list of what your contributions are and who they come from. [This] is the more modern version of a bridal purse.”
However, crowdfunding for a down payment does come with some challenges. As one example, HomeFundIt (formerly known as HomeFundMe) is backed by mortgage broker CMG Financial, meaning anyone raising money on that platform must receive their mortgage through that company. That bars them from shopping around for other lenders, interest rates, and conditions. They must also be pre-approved for a loan before launching their campaign. Then, homebuyers have 12 months to raise their money before buying. (HomeFundIt did not return a request for comment.)
If campaigners don’t reach their goal and are unable to put down 20 percent, they might be required to pay private mortgage insurance, a fee many homeowners encounter, regardless of how they financed their down payment and not contingent on which crowdfunding site they used. For platforms like HomeFundIt, campaign contributors can give “conditional gifts,” or funds that must go toward the down payment. Should the goal not be reached, these donations would return to their benefactors. But for wedding registry-focused sites like Honeyfund, registrants are guaranteed every penny.
And even running a successful campaign doesn’t necessarily mean being all clear for a mortgage, because crowdfunding itself can raise red flags for lenders. “People who crowdfund their down payment appear as higher risk to lenders,” said Daniela Andreevska, marketing director at Mashvisor, a real estate data analytics tool. “After all, they don’t seem to have a stable source of income which allows them to save up enough for a down payment on their own.”
Instead of relying on a crowdfunding platform to get you from zero to down payment, Andreevska recommends that potential buyers build savings on their own and use these platforms to carry them through the final stretch. “This whole idea is very new, so traditional mortgage lenders still need to get adapted to it,” Andreevska said.
Though Kim Pfeifer-Adams and her husband are relying on a GoFundMe campaign to crowdfund a down payment, they said they had no issues with loan pre-approval. Rather, their lender encouraged the couple to reach out to their network to contribute to a downpayment, said Pfeifer-Adams, 47. She had enough cash she’d been saving for her son’s future college fund that the bank considered liquid assets. But because she would rather not touch that money, Pfeifer-Adams turned to GoFundMe, where she raised over $1,000 of her $5,000 goal in a week.
Pfeifer-Adams and her husband aren’t celebrating a major life event or achievement, though. (They’ve been married for nine years.) That gave her pause over whether to launch the GoFundMe campaign. “You kind of have to swallow your pride,” she said. “You do feel like you’ve got your hand out.” But their landlord alerted the family that he’d be putting their rented Phoenix home on the market this year. Having a deadline raises the stakes, she said, and the GoFundMe donations will help kick-start the home-buying process.
Having a concrete goal or a vision makes your network more likely to contribute to your cause, said Sara Margulis, founder and CEO of Honeyfund: “Couples who break out their items onto a wishlist and get really specific will often raise a lot more.” Kurt Crowley, 34, and Carlos Gonzalez, 31, took that route when crowdfunding via Honeyfund ahead of their July 2018 wedding for a home they recently purchased in Cuba. They encouraged guests to contribute a few bucks to restore the original tile floors, or gift money for new stained glass windows, for example.
Though the funds all went into the same pot of money, creating a narrative around where the money would be allocated helped bring the couple’s network into the process—and gave a reason for contributors to visit the couple in a home they own in Havana, hundreds of miles away from the apartment they rent in New York City. Crowdfunding provided Crowley and Gonzales the opportunity to embrace their first real estate venture with fewer financial inhibitions, to afford to put equity toward a physical investment.
“We’re making choices any homeowners would make,” Crowley said. “We don’t think about X-amount given by our wedding guests. This Honeyfund helped us achieve a goal that would be challenging.”
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