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Student loan debt and rising rental prices are standing in the way of many millennials who want to buy their first home; however, these challenges are being overcome via some unconventional methods. Millennials are getting creative and finding sources for their down payment by any means necessary. But are these methods hurting the millennial generation financially? These options are often a last resort, as they can be costly—and can even take an emotional toll on those involved.

Borrowing From Family
Sure, gifted money doesn’t sound bad. But what if the families don’t have the cash to give? Instead, buyers are asking that their parents’ home be refinanced, using the home equity as a way to fund their own home purchase.

Of course, this can be beneficial in multiple-offer situations to get a competitive edge with an all-cash offer, but borrowing from a relative can go south fast. Not being able to pay a bank back can have repercussions like hurting your credit score, but missed payments to a relative can damage familial relations. Is it worth the risk?

Crowdfunding
There are new crowdfunding platforms being introduced every year, and more of them are tapping into the real estate industry. This can be a great way to amass gifted money from friends and family, but not everyone may see it that way. Instead of crowdfunding for their honeymoon, newlyweds are asking their wedding guests to donate toward their first home.

In the eyes of more traditional guests, this can come across as rude or greedy, so it’s important to tread lightly before deciding to blast friends and family with a link to your crowdfunding account. This method can also get complicated in the lending world. Buyers will need to look into gifting regulations before accepting any gifted money. There are strict rules on where down payment funds can come from, especially if a large sum has been given as a gift.

Withdrawing From Retirement Funds
Millennials are withdrawing or borrowing from their Individual Retirement Account (IRA) or 401(k) account as an easy way to get quick cash. But not so fast—there are strings attached. Tapping into retirement savings early comes with complicated restrictions and, depending on the type of account, could lead to exorbitant fees and tax penalties that’ll dig deep into a person’s retirement reserves. That’s why it’s not a good idea to mess with retirement funds, but some millennials are doing so as a last-ditch effort to afford a home.

While first-time buyer programs may come with higher interest rates or higher monthly mortgage payments, they’re typically a more secure way of purchasing a home without requiring a large down payment.

Before going the route of alternative down payment methods, consult a mortgage lender to go over options.

This article is intended for informational purposes only and should not be construed as professional or legal advice.

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