Crowdsourcing a down payment is the latest wedding gift
Past generations of brides and grooms may have needed toasters and towels for wedding presents.
But current couples have been waiting longer to marry and 3 out of 4 are living together before they say "I do."
As a result, they have more than enough stuff to fill a home long before they tie the knot. It's the home they need help with.
The high-tech way to solve that problem is to create an online registry where friends and family can take the money they plan to spend on a wedding gift and collectively put it toward the down payment on a house.
It’s known as crowdsourcing or crowdfunding and it’s being touted as a way to raise cash for just about anything — new businesses, medical expenses, honeymoons, home improvement projects and real estate down payments.
The only drawback is that there are fees involved.
While that might make you reluctant to take part in this kind of crowdsourcing, think about all of the taxes and shipping costs associated with traditional wedding gifts.
Most sites charge a percentage of total donations — 5.9% at HatchMyHouse.com and 5% at FeatherTheNest.com, for example. (That's less than the sales tax rate in most states.)
Let's say 75 guests attend your wedding and are willing to spend an average of $100 on a gift. If you direct those friends and relatives to a crowdsourcing registry, you could wind up with $7,125 toward your down payment ($7,500 less $325 in fees).
“We’ve had couples receive as much as $9,800 on our site,” says Rieve MacEwen, who co-founded HatchMyHouse.com with his wife, Erin-Marie, in 2009.
“It didn’t fund their entire house down payment," he says, "but it was the extra amount that got them over the hump to achieving their down payment needs.”
To date, Hatch My House has hosted registries for more than 2,000 couples and reached more than $2 million funds donated.
Feather the Nest is a brand new offering in the crowdsourcing world, launched in May 2014. CEO Lindsay Oparowski came up with the idea after her second child was born.
Instead of needing baby items on a traditional gift registry, she and her husband really needed funds to make some home improvements to turn a junk room into a nursery.
“Feather the Nest was created to be a different way to ask for money without awkwardness,” Oparowski explains.
They have four types of nests on the site: down payment, home improvement, furniture and miscellaneous, with nine nests created to date.
“We’re very real estate specific," she says, "Our most popular type of nest so far is a down payment.”
Many of their couples are already saving for a down payment, according to Oparowski, and crowdsourcing provides a good opportunity for them to accelerate their savings plan.
“If someone donates money to your nest today, that money will be in your bank account within two days. The gifts are immediately delivered,” she says.
DownPaymentDreams.com operates on a slightly different model than the other two sites in terms of fees.
Instead of taking a percentage of donated funds, this site charges only an initial $50 fee to register. That money will be refunded if you use their real estate agent referral system and complete your home purchase with that agent. Couples also receive a gift card at closing based on the price they are paying for their new home.
“All of the gifts go directly through PayPal,” says founder Teresa Krebs, a real estate agent based in Wilmington North Carolina. “PayPal charges a 2.9% fee, plus 30 cents per transaction. We would love for everything to be free, but that’s not the case. Since PayPal charges a fee, we thought, ‘How can we give it back?’ The agent referral process [and gift card at closing] was our answer.”
Launched in 2009, DownPaymentDreams.com has seen more than 800 people sign up, but surprising to Krebs, many do not use the agent referral service. Since the payments are made direct through PayPal, Krebs doesn’t have any way to track how much money is being contributed to users of her site.
As your gifts start rolling in, make sure to keep proof of the money that’s been donated. Mortgage companies want to make sure the money in your account is actually a gift from family and friends instead of a loan that you have to pay back.
“When they receive a receipt from PayPal, hang onto it,” advises Krebs. “That way you can show the loan officer where the funds for a down payment are coming from.”
Also, depending on the type of mortgage you apply for, there are different rules for applying gift money to the down payment. With FHA and VA loans, all of your down payment can be from gift money, but with a conventional loan, you can only use part of the gift money if you put down less than 20%.
Sit down with your lender before you start your online registry, and see how the rules apply to your specific situation.