Crowdsourcing or crowdfunding for your home’s down payment

This article is reprinted from Wine Country Real Estate, a special advertising section of The Press Democrat.

In December I wrote a column 'Where to Find Your Down Payment for a Home,' exploring the different ways to raise this essential part of the home buying equation. Gifting is a major source of down payments and I discussed how the process works and how a 'cash' gift from parents or relatives meets lender requirements for a down payment. We can broaden this 'gifting' program with the aid of a new social media phenomenon called 'crowdsourcing' or 'crowdfunding.'

You may have heard the fun story of a spoof of crowdfunding where a young man developed a big campaign dedicated to perfecting a potato salad recipe. He put together a video where he seriously explained why the world needed the perfect potato recipe and the difficulty in putting together the proper balance of potatoes, mayonnaise, spices, etc. It was a hoot but many thought it a worthwhile endeavor—he raised $55,492 and had 6,911 backers! (He donated the money to charity.)

In a way, purchasing a home is a recipe with the main ingredient being the cash for a down payment. The potato salad guy's inadvertent success in raising money by 'crowdfunding or -sourcing' spawned applications for raising your down payment for a new home.

The down payment crowdfunding sites are mostly linked to your wedding but some exist to help you with furnishing a home or remodel work and will stand alone from a wedding event. One caveat: for these crowdfunding sites to be successful you need to think economy and austerity when it comes to your wedding. If you are having a 'destination wedding' in the Bahamas on a rented mega yacht at sunset, folks may find your request for help with your down payment a bit disingenuous.

Many of you may be uncomfortable asking for cash for in place of customary wedding gifts. None other than Emily Post, the Grand Dame of etiquette and social manners, states wedding 'gifts may range from traditional housewares to money towards a trip or a house.' Most couples will set up a wedding registry for gifts but according to Brides Magazine, 65 percent of altar-bound men and women live together before getting married. So they most likely have all their household goodies and don't need any more towels, China, etc. Why not donate cash to buy a home or help with a remodel?

Forbes magazine states, 'Your network is truly your net worth — and that maxim has never been more accurate than when it comes to Kickstarter or other crowd-funding efforts.' Your wedding list will most likely include many of your network but also your relatives, friends, co-workers, etc. With these crowdfunding sites you'll be able to invite them all to the wedding and direct them to your fundraising site. Since an increasing number of couples are already living together before the wedding, most friends and relatives will understand your desire for money for a down payment (and less of a need for the traditional registry items.) If you have some seed money put aside this will also show them you are diligently working towards savings for the new home. Get them on your home buying team.

Crowdfunding sites ask you to register your wedding or home improvement project; the registration and set up is free but there is a per transaction fee usually from PayPal. The fees are in the 5.5 to 6% range per transaction. One site, 'Hatch My House,' states their average gift is $125.00 which is above the industry standard of $113.00. They also state the average number of gifts at a wedding is 70. Seventy gifts of $125 gives you $8,750 towards your down payment. With this new nest egg, the new Fannie Mae 3% down payment programs become more accessible. Here are three of the more popular crowdsourcing sites to explore:

Hatch My House. Register for free on this site and use it for your new home down payment crowdfunding. You can design a house by picking out six house styles, six colors and different fund raising 'settings'. They even provide samples for how to share your new registry: 'Hello there! Thank you for visiting our Hatch my House page. We were trying to figure out what to do for our wedding gift registry, and the most special gift we could think of was helping us get into a house of our very own! We have narrowed down the options and believe we've found the area we'd like to live in…the next step is finding the house itself. Thank you so much for your love and support. We look forward to celebrating with everyone in the coming months!' You can send this out from the site and those giving can actually pick out an item (sofa, chair, curtains, etc.) with a dollar amount. Also works with wedding expenses, graduations, anniversaries, or birthdays.

Feather the Nest was created to be a different way to ask for money 'without awkwardness.' This site has four types of nests on the site: down payment, home improvement, furniture, and miscellaneous. This is a newer site but states they concentrate on real estate and raising the down payment through crowdsourcing.

DownPaymentDreams.com is a unique site as it also has a real estate referring component. It was launched in 2009. They boast they help users 'Buy the House of Your Dreams with a Down Payment Wedding Registry.'

You may be wondering about the downsides of using these crowdfunding/sourcing web sites? Your friends and relatives might be offended and there is usually a 'load' or fee per item of around 6% . However, the upside is your guests can contribute to a legacy and the actual formation of your household. And who would not want a home for a wedding present? Beats potato salad. A win-win for all parties.