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Alternative Borrowing Programs May Overheat Market Further

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Alternative Borrowing Programs May Overheat Market Further


July 10, 2018
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Photo: Unsplash/Modern Afflatus

Startups and traditional lenders are offering debt-laden first-time homebuyers with good credit a variety of flexible borrowing options, but experts caution that such assistance programs may enflame the market.

Currently, about 40 percent of renters aged between 25 and 34 years old are not able to save a dime toward a down payment each month, per Apartment List survey data. Startups and other lenders offering alternative borrowing options will put up money toward a down payment for qualifying applicants in exchange for shared equity, or collateral in the form of investment assets. Realtor.com reports that economists are worried that such infusions of down payment money, or relaxed credit standards can boost demand even higher than it already is on a market where supply is incredibly tight, driving home prices higher. If home prices fall later, borrowers in these programs may back out. 

About 400 borrowers have used HomeFundMe to help buy homes since the program launched in October. On average, they raise about $2,500, though CMG Financial also can kick in matching grants, and most borrowers have some of their own money saved as well, said chief marketing officer Paul Akinmade. Friends and family can also make their gifts conditional, meaning borrowers won’t get the money unless they actually purchase the home.

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