Refinansiering: Is Crowdfunding a Good Way To Fund Down Payments?
Having a hard time coming up with a down payment (DP) for a housing loan is a common problem that most buyers experience. They might be able to turn to solicit small amounts from family members and friends or online crowdsourcing, to get all or some of the necessary amount they need.
A DP can be the person’s most significant financial issue they will face when taking out a housing loan. A 5% DP on a house that costs two hundred thousand dollars comes out of ten thousand dollars. That is too much money, especially for individuals buying their first house who cannot rely on the equity from a property they are selling.
So it is not surprising that some inline firms have formed to help people crowdfund the hard task of raising DP funds. Websites have sprung up to help individuals request DP gifts from family members, friends, or co-workers. People can set up their own DP registries by starting accounts with these websites.
Family members and friends can then donate cash through the Internet. These donated monies usually go through PayPal or other kinds of accounts. Property purchasers treat these funds, just as they would a conventional DP gift, using the money to cover all or some of their down payments.
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Fees and letters needed
Of course, there are potential pitfalls in the process. Home buyers will need to provide gift letters showing that the cash they got is actually a small gift and not a loan. Individuals also might lose some of the money they collected in the form of payments to crowdsourcing firms they use to gather these down payment funds. For most firms, the biggest disadvantage is these fees.
Crowdfunding websites take a huge chunk of these donations, anywhere from 4% to 10%. Especially if these gifts are coming from family members or friends that would have given them cash no matter how they asked, they are almost wasting cash by going through crowdfunding platforms.
This industry is still in its infancy stage
The people behind these websites say that crowdfunding is a way to pay for a home loan down payment is steadily gaining steam. The industry is still in its infancy stage now but is only growing exponentially in popularity. According to these sites, the way individuals are getting hitched today makes paying for DP through these sites a better option for most couples.
A lot of individuals are getting married later in their lives and have already lived under one roof together before getting married. These couples need a house once they get married. But there is a good chance that they might not need a new refrigerator because they already owned one.
They do not have a need for items that have conventionally been gifted during showers and weddings. There is a good chance that they already have things they badly need for their house. So why not ask for what they need, cash for a home down payment? That is more important to the individuals signing up for these types of websites.
How do these things work?
Clients create what these companies call a nest. It is basically a website listing customers’ goals and providing their family members and friends with a way to donate money. To work with these platforms, consumers must first create accounts with credit card-processing firms.
The crowdfunding firm transfers donations to clients’ accounts within minutes of receiving them. According to experts, crowdfunding companies can provide consumers with letters stating that the fund collected for DP is a gift and that they are not expected to pay it back. It is very important; lending firms require these letters from the borrower relying on DP gifts to make all or some of their down payments.
Housing debenture lending firms treat loans from family members and friends differently. These are funds that people need to pay back, and lending firms will consider them as real debts. Financial institutions might hesitate to approve their debenture request if they have too much obligation than their monthly income.
However, gifts do not add to the person’s debt totals since borrowers do not need to pay them back. Clients can use their donation funds however they want, even if the person states that they are collecting this money for a property down payment. Suppose the person does not get enough money to hit their DP goals.
In that case, they can use the cash they collected to purchase furniture for their new house, hire landscaping services, or cover costs of anything else they would like, though it might make their donors very happy. Crowdfunding platforms charge a 5% transaction fee on donations that their customers receive. If the individual gets the assistance of one thousand dollars from a friend, these platforms will take fifty dollars. The card-processing platform will charge an additional fee of 2% to 3%.
An excellent alternative to expensive and useless wedding gifts
Back then, these websites mainly focused on donations that individuals could use after their wedding. However, today, couples can use these websites to find finds for everything from home furnishings to the property’s down payment. People have other options to receive gifts outside the Internet world, which guests would either bring during the wedding or mail directly into the married couple in the case of bank checks.
Some sites do not charge for this type of service. Couples can also choose to have monetary donations that will be deposited directly to their PayPal accounts. Individuals who choose this kind of options pay 2.8% plus three cents for every successful transaction.
Any time people have a major life event, other people will be more inspired to impart something to them. These sites can direct donations toward the most salient need in people’s lives at that moment. If the person is going to get married, they are going to receive different gifts anyway.
For married couples who need funds for a DP, it is an excellent way to get that energy and make their goals or dreams come true. Experts said that at least a million individuals sign up for these platforms every month to set up online registries. How much these people collect depends on what they request funds for, but average couples can expect to collect around five thousand dollars in donation funds from their accounts.
Couples need to make sure it is a gift
According to professionals, couples should speak with their lending firms to find out how they can record that the funds they have received, are gifts. Some of these websites will create their letters stating that the funds they just received are a gift from friends and family members and not loans.
They should not think it is not vital. People do not want to collect all these funds only for financial institutions like traditional banks, credit unions, or lending firms to reject it. It can happen if they do not provide proper documents, in the form of letters, stating that the money they have raised is wedding gifts and not debentures that they need to repay sooner or later.
It means that if the person’s uncle or aunt provides them the assistance of two hundred dollars that they are using for their down payment, they need a letter from their relatives stating they are not expecting any payment. And couples should not think of crowdsourcing DP money as a wedding gift while covertly agreeing to pay people who donated.
If lending firms find out that their gift DP funds are actually loans, they could face civil or criminal charges. Purchasers should be aware that financial institutions like conventional banks, credit unions, or lending firms do not like to see parts of the DP borrowed.
They usually ask, in separate places, where the funds are coming from and whether parts of them are borrowed. People caught lying can be charged with fraud, and it is a criminal offense. According to real estate agents, borrowers must ensure that the lending firms they are working with will have no problem accepting these gift funds collected during the wedding.
Making the company’s pitch stand out
Do firms expect to see more of their clients turning to activities like refinansiering med sikkerhet to pay their down payment? Maybe – but that is still a big maybe. As for whether it will take off or not, most experts said they are not sure. They could see this thing becoming a huge part of wedding registries, but otherwise, they do not see a lot of opportunity for it.
The biggest issue property buyers will face trying to get interested among the borrower’s family members and friends. There are tons of individuals making this kind of request today. It can be pretty challenging to stand out in this industry, especially if they are looking for money for something that is not an emergency.
There are various requests for funds from individuals who make strong cases to help them pay medical bills, build extensions on their houses, pay for the couple’s honeymoon, and purchase a house. The public has grown tired of digital panhandling and is less likely to back personal crowdfunding campaigns unless something compelling drives the public’s generosity.
The alternative, according to experts, is that people looking for DP funds do it the traditional way, hitting up relatives and friends in person for wedding gifts or interest-free and short-term debentures. They just need to remember that if they get these funds as loans that they need to pay back, financial institutions will count them as part of their debts. Couples can promise excellent and epic after-wedding parties, barbecues, or other perks of this type. Following this way of getting funds is a low-tech and rudimentary form of crowdfunding.