The down payment has always been one of the biggest roadblocks to home buying. And with home prices on the rise and the median down payment hitting an 18-year high of $20,000 last year, that’s not likely to change anytime soon.
Once you add in the staggering student loan debt that Millennials—today’s biggest cohort of buyers—are facing, the chances of saving that $20,000 seem slimmer and slimmer. In fact, according to a recent survey, it takes a third of today’s first-time buyers more than two years to save for their down payment.
Fortunately though, while the burden of a down payment may not be shrinking, thanks to technology, the process of saving for one may just be getting easier.
Here are some of the most innovative ways today’s cash-strapped young buyers are overcoming the down payment hurdle:
1. Loftium
Capitalizing on the short-term rental movement, Loftium will cover a buyer’s down payment in exchange for a cut of future Airbnb proceeds. Buyers just have to agree to dedicate a space in the home to Airbnb hosting and pay Loftium half of their monthly income from the room. Loftium will even help buyers better manage their Airbnb listings with upgraded locks, shipments of supplies and toiletries, and more.
2. HomeFundMe
HomeFundMe is a crowdfunding platform dedicated to down payments. Much like Kickstarter or Indiegogo, buyers create a page, set a goal amount and tap their personal networks to raise funds. Users also get access to a personal fundraising adviser, and they may even be eligible for parent company CMG Financial’s matching program, which gives buyers $2 for every $1 raised—up to $2,500.
3. Acorns
Acorns gives buyers a hands-off way to turn spare change into potentially big returns. The app links to the user’s bank account, and then “rounds up” on each transaction processed, depositing the difference into an investment portfolio of their choice. On a $2.95 purchase, for example, Acorns would take that extra $.05 and automatically invest it in a professionally-managed portfolio. The user can monitor the portfolio’s performance and pull from their balance at any time. Clink and Stash are similar investing apps.
4. Digit
With the motto “save money without thinking about it,” Digit’s another hands-off savings tool that puts the down payment within reach for many buyers. For each individual user, Digit will calculate the best amount to save based on their income and spending habits. It then automates the savings process and delivers 1% cash back on those savings every quarter. When users are ready to withdraw funds, all it takes is a quick text message, and Digit transfers the money.
5. Round-off programs
Acorns isn’t the only tool that utilizes the spare-change approach. Bank of America’s “Keep the Change” program offers a similar savings tool for its customers, while Chime’s automatic savings card does the same. There’s even a round-off program called Coinflash that will invest that spare change in Bitcoin.
6. Equity sharing
A company called Unison is taking a new approach to the down payment conundrum, offering—in most cases—to split the down payment 50-50 with a buyer, in exchange for a share in their home’s equity. Unison typically takes a 35% stake in the home—whether its value rises or falls—and will reap a portion of the proceeds when the house sells down the line. As an extra benefit to buyers, Unison’s addition to the down payment may help eliminate PMI and lower their monthly mortgage payment.
7. Employer benefits
Buyers may be able to get additional down payment help by choosing their employer carefully. On top of its crowdfunding platform, HomeFundMe also has an employer-facing portal that allows companies to offer down payment contributions as part of their benefits packages. A few of the companies already on board include Graceland University, Salons by JC and The Buyer Agency.
8. Divvy
A new spin on the rent-to-own arrangement, Divvy lets buyers pick and choose their properties, which Divvy will then buy and lease back to them. Buyers do need to put 2% down up front, but after that, part of their monthly payments will go straight toward equity in their dream home.
There are also a plethora of down payment assistance programs, as well as various grants available, depending on a buyer’s location. Buyers should tap their state and city housing departments for information on programs in their area.
