For many homebuyers, funding a down payment on a home requires months (or even years) of saving, or a piggyback loan on the mortgage. There is, however, an interesting new twist to funding a down payment. It involves a somewhat convoluted process of becoming an independent contractor and selling a home club membership through a process called DpFunder. MarketWatch explains how DpFunder works:
DpFunder works this way: The potential home buyer signs on as an
independent contractor with Global Direct Sales LLC, Gaithersburg, Md.,
a marketing company.
The person who wants to buy the home sells a membership in “Owners Alliance Inc.” to the homeowner. Owners Alliance Inc. is a for-profit company, with a Washington address, likened by salespersons to AARP. …
Under the DpFunder arrangement, the property seller signs a property
enrollment form, agreeing to purchase an Owners Alliance membership for a term ranging from three years to 20 years. The term is based on the
agreement between home buyer and home seller.
The home seller also agrees to assignment of funds, which allows
payment for the membership to be deferred until settlement.
The home buyer signs a document allowing Global Direct Sales to pay him or her as an independent contractor, a W-9 form for the IRS and an
authorization form allowing Global Direct Sales to deposit money from
the commission in an FDIC-insured account it sets up in the home
The home buyer, at settlement, gets a commission, ranging from 3% to
10% of the home contract sales price, direct-deposited into an
FDIC-insured bank account. The commission is based on the membership term.
First of all, realize that as an independent contractor, you will have to fill out a W-9 and be issued a 1099. This will count as earnings by the IRS. So you will have to pay taxes on it. You should carefully consider how this will affect your financial situation, since the whole amount of your “commission earnings” will go to the down payment, but you will still have taxes to pay.
Also, consider that you may end up paying more for the home’s sale. It is true that there are many cases where you have to pay more in order to get a home (increased interest payments based on your credit score, etc.), but this can actually bump up the price of the home sale itself. So consider whether that option is worth being able to make your down payment.