Crowdfunding platforms have been rising in popularity in the past few years as a way for the average person to financially support business startups and passion projects.
Lately, however, a growing number of people have been using these platforms not for support in developing a product or idea, but as a way to step into the world of homeownership.
The economic reality of many young professionals is that of student loan payments and little to no savings. According to Jonathan Lawless, Vice President of Fannie Mae, “The No.1 challenge we hear from Millennials regarding their ability to buy a home is the down payment.”
This means that tapping into real estate crowdfunding platforms might be the only way for them to come up with a down payment. However, crowdfunding your down payment is a decision that should be made with careful consideration of a few concerns.
Primarily, the lack of savings or the inability to save money can be telling of whether you are capable of keeping up with mortgage payments. Part of responsible homeownership is being able to maintain savings that can be used toward possible repairs or other minor emergencies; to opt into a mortgage with a plan that relies on nothing going wrong is both naïve and irresponsible.
Being able to develop savings and having the financial literacy to plan for rainy days are the two most important characteristics homeowners should have before crowdfunding their mortgage. Getting caught in the position of missing a payment leads down a path that involves late fees, damage to your credit score, and possibly foreclosure.
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Crowdfunding your down payment, like any other real estate investment, should be given the weight and consideration that the decision deserves.