Between its inception in 2008 and the end of 2013, crowdfunding- “the practice of raising funds from multiple individuals via the web”- became a $5 billion industry, according to a 2013 study by the World Bank.
While crowdfunding campaigns have been used for everything from producing a new product to making potato salad (seriously, the guy raised $55,000), they are now being used for something much more personal. People nationwide are now turning to crowdfunding sites to help them buy a house.
Many of these sites are targeted toward couples about to tie the knot. They work much like traditional wedding registry sites in that the couple registers online, creates a list of options for their guests to purchase, and then shares the site with their friends and loved ones. But instead of a toaster, the options include things such as $150 toward closing costs or $300 toward a down payment.
There are other sites that are more targeted to those already in their home and looking to renovate or remodel. Users can upload pictures or blueprints to share their vision with their friends and family and add options such as $100 for paint or $200 for a new fridge.
While this may be a good option for some, there is also debate over the tactfulness and even the legality of using others to fund your new home purchase.
Here are a few things to keep in mind when working with customers who have or are considering using these sites.
- Gift funds must be properly documented when using them toward a down payment.
- You will not qualify for a tax deduction for contributing to one of these sites. It is a gift, not a donation.
- The money may be required to sit at the bank for 60 days before it can be used- just like cash would.
This is a guest post from our friends at Supreme Lending. Learn more about what their offering at SupremeLending.com.