Saving for a down payment is one of the biggest impediments to homeownership, and while some lenders will extend a mortgage with a down payment as low as three percent, many low-income renters simply don’t have the means to come up with thousands of dollars to put down on a mortgage.
But mortgage lender CMG Financial has a division called HomeFundIt that’s tasked with coming up with creative ways to allow people to save. A year ago, the program, then called HomeFundMe, launched as a crowdfunding platform that lets prospective homeowners’ friends and family pave the way to their American Dream by contributing to a down payment fund.
This week, HomeFundIt launched UpIt, a cash-back program that puts a percentage of your shopping bill with qualified retailers in an account that can later be used on a down payment for a house. Anyone can set up a fund and anyone can contribute so long as they shop through the platform, and the fund can stay active for as long as it takes to raise enough money.
“You’ve got somebody who’s really trying to become a homeowner in a low income area, but it’s likely their [personal] network is in a low income area, too,” said HomeFundIt’s Paul Akinmade. “So how do you reach that person? What other mechanisms out there exist that through creative engineering we could apply to this space and help a lot of people? That’s how we came up with the shopping component. Every demographic shops.”
Akinmade says HomeFundIt’s crowdfunding platform has helped about 500 families raise $1.5 million funds for down payments, with an average down payment of seven percent. The platform provides free homeowner education services to ensure buyers know how to manage their property and mortgage.
UpIt provides another layer of funding that can be mixed with money from a crowdfunding effort, or be used as a standalone source. UpIt is launching with dozens of name-brand retailers, including Walgreens, Overstock.com, and Expedia. Depending on the retailer, the percentage of a transaction that goes into the UpIt fund can be as high as 10 percent. In addition to the web platform—including iOS and Android apps—where users can shop, the company plans to add a Google Chrome extension sometime in 2019.
As a measure to protect donors, funds collected from crowdfunding are good only for a year, although Akinmade says the company will work with the prospective buyer even if they don’t have the total amount after a year. But the UpIt funds won’t have an expiration date, which provides intriguing possibilities to anyone who’s planning long term.
“If you have a kid, you essentially could set them up with a home savings account,” Akinmade said. “By the time they’re done with school and are ready to lay down roots, they’ll have those funds readily available to become a homeowner.”
For prospective homebuyer, down payments are often a source of stress—and confusion. According to a 2017 survey from the Urban Institute, 53 percent of renters said a down payment was the primary reason they were not homeowners. But the same survey showed that renters didn’t have an accurate understand of how much a down payment really is. Only 12 percent of renters believed you could buy a house with a down payment of five percent or less. Almost 40 percent of renters believe you need more than 20 percent for a down payment.
A mortgage that’s sold to Fannie Mae and Freddie Mac—which make up about 95 percent of all mortgages—can have a down payment as low as three percent. A mortgage through FHA has a floor of 3.5 percent, while a VA mortgage can be 100 percent financed.