by HAL M. BUNDRICK, CFP
Let’s say you don’t have a rich aunt who’s going to spot you the down payment for a home. And maybe you’ve tapped all the down payment savings hacks you can find. Still, your savings balance is so small you’ve got to squint to see it.
Can you crowdfund your down payment? Maybe get a grant? Here are some online resources to help you clear the biggest hurdle to homeownership.
Can you crowdfund a down payment?
Crowdfunding is the ultimate dream for snagging sudden money from strangers, other than the lottery. It can be done, but there are some catches:
The fees. You may have to pay a flat 5% right out of the gate plus an additional fee for processing payments.
You’re not going to get this done on Kickstarter — personal fundraising isn’t allowed there. Sites like GoFundMe are best suited for hard-luck appeals like medical expenses for life-threatening diseases, so it’s unlikely you’ll get a lot of help there when you’re pitching to raise money for a mortgage down payment. But who knows?
Since this is most likely going to be an effort to tap the pockets of friends and family, it makes sense to head to online resources that cater to the effort. DownPaymentDreams.com allows you to build a profile for a gift registry where contributions to your down payment can be funneled into a PayPal account. It seems particularly suited for engaged couples and newlyweds.
FeatherTheNest.com and HatchMyHouse.com are other fundraising registries catering to house-hungry, down-payment-poor young couples.
Lenders are picky about where you get your down payment. Gifts from family and friends are usually acceptable, but you have to account for where the money came from when you apply for a loan, so you’ll need to document every donation.
Other down payment assistance online
Then there are government grants and low-interest loans. Many states have housing assistance programs, and they’re not just for low-income households. Limits often mirror Federal Housing Administration income standards.
For example, assistance offered by the California Housing Finance Agency has income limits for a two-person household that vary from the low $50,000 range to the high $90s, depending on the county where you live. And CalHFA’s first-time-buyer program will kick in up to 5% of the purchase price in a deferred-payment loan toward your down payment.
Many other states have similar programs, although finding them can be a challenge.
DownPaymentResource.com says it works with real estate agents, lenders, government agencies and multiple listing services to find down payment assistance, asserting that “87% of homes are eligible for some type of homeownership program.”
“The down payment program benefit most frequently found is $10,000,” the website says, noting it tracks nearly 2,300 homebuyer programs.
If you enter some personal details, including where you are looking to buy a home, your target purchase price, income and other profile data, the site will provide a list of programs you may be eligible for. The possibilities include grants, first-time-buyer programs, and tax credits.
How to protect your down payment
Once you’ve banked the down payment, you may be nervous to bet it all on the housing market. It’s a big chunk of money, and what if real estate takes another dive?
ValueInsured, a large re-insurance company, offers a program that protects your down payment if you’re forced to sell your home for a loss. The sale must occur at least two years after you purchase the home but no later than seven.
For example, if you make a 10% down payment ($30,000) on a $300,000 home and then sell the home for $280,000, the policy would reimburse you for the $20,000 loss. The protection pays the difference between the price you paid for your home and the price for which you sold it — up to the entire amount of your down payment (a maximum of 20% down).
How much does it cost? The company says it’s about the same as the price of “a lunch a month.”
The next step
Finding a way to crack the down payment nut will get you closer to the day you own your own home. And with an FHA-, VA– or USDA-backed loan, you may need to save a lot less than you thought, though there are trade-offs.
In the meantime, if you have to crowdfund your rich aunt, so be it.