Can You Buy a House With No Money Down?
The thought of buying a home can be exciting, but the idea of saving up a substantial down payment can be overwhelming. Real estate pros suggest having 20% of the total price of the home paid up front. This prevents you from paying the PMI and also helps you pay off your mortgage sooner. Having 20% to put down on a house lets the lender know you’re serious and gives you a better chance to be approved for the loan. But saving up a big chunk of money to buy a house may not be a realistic option for every buyer. Does this mean you’re stuck in “Rents-ville” forever? Not necessarily.
If you want to attempt to purchase a home with no money down, there are a few legit ways to make it happen. We talked about some of these in our recent “No Money Down Real Estate” podcast. It’s important to remember that not every option will work for every buyer, but it’s worth a shot to see if you qualify for any of these methods:
One way to purchase property without saving up a significant down payment is to borrow money from someone else. This can be done in a variety of ways, such as:
- Gong to a hard money lender
- Credit Cards
- Borrowing broker’s commission (very technical and not recommended)
When you use someone else’s money to use as a down payment, prepare to be asked to source the loans. You will need to prove that the money is yours to move forward with the loan.
Assume an existing mortgage
Unless there is a “due on sale” clause written into your contract, you can negotiate with the seller to roll the current financing into the purchase price. If the contract doesn’t have this clause, the seller has the option to keep the loan in place after the sale. This option only makes sense if there is an excellent interest rate involved.
Lease with the option to buy
With this option, a predetermined price is agreed upon between you and the seller. A date is set for when the amount will be paid. A percentage of your rent goes towards the down payment of the home. This is usually a better deal for the seller than for you.
Utilizing seller financing works best when you have a highly motivated seller who owns the property outright. Instead of getting a loan from the bank, the seller lends you the money for the house, The two of you draft a promissory note detailing aspects of the loan such as repayment schedule and interest rates. As the buyer, you send your mortgage payments to the seller who in turn earns interest on the loan. A desperate seller may agree to do a no money down deal if it means closing quickly. This may mean agreeing to pay a higher price in the long run instead of providing a down payment up front.
Programs such as the USDA and VA help specific groups of people reach their real estate goals. USDA focuses on rural development and offers zero-down mortgages for families who qualify as low or moderate income. This doesn’t mean you have to buy a home in the middle of nowhere, but it does come with a set of restrictions on where you can purchase a property. The VA loan program helps veterans who are looking into buying a house with no money down. Neither of these programs requires mortgage insurance, making them affordable options for those who qualify.
Work With A Partner With Capital
If you don’t have the money up front but know someone who does, you may be able to purchase property without any money down. If you’re going into this real estate adventure with a partner, you may be able to strike up a deal that makes sense for all parties and doesn’t require you to bring any money to the table. If you can find the deals and then bring it to someone who has capital, you can get a return just by finding the deal. Although this doesn’t qualify as passive income since there is a lot of work that goes into putting the buyer and seller together, it is still a valid way to buy a home with no money down.
Taking On The Seller’s Debts
If the seller has an outstanding loan, you can offer to take on that loan instead of having a down payment.
Swapping Personal Property
This is one of the more creative options, but it may be the one that works for you. You may have a camper, RV, motorcycle or another valuable asset that the seller is willing to accept instead of a down payment. If you have a skillset that is valuable to the seller, you could offer your services in place of a down payment. This could be anything from accounting and computer programming to car mechanics, medical services, or plumbing.
What About Investment Property?
Buying a property to live in is much different than buying an investment property. Many first time investors have asked us how to purchase an investment property with no money down. There is a way for buyers to loan money with unsecured lines of credit through 0% interest credit cards. This 12-month process gives you a chance to pay cash for a less expensive property and then come back with real cash-out refinancing and use the cash out ReFi to pay off the credit card. Want to know more? Email us.
While some of these reasons are easier than the others, they all require extensive research and careful planning. Real estate is an industry where for the most part, you put money in to get money out. If you are going to get creative and find home loans with no money down, you need to do your homework. Keep these things in mind:
- Many companies will prey on individuals who want to make money but don’t know much about the industry. Companies will market the “no money down” strategies to take advantage of people. Follow your gut, and if it seems too good to be true, it probably is.
- There are real ways to find a no money down mortgage, but they are usually complex and require the experience and expertise of a professional to carry out successfully
- You can either have a no money down mortgage OR positive cash flow and forced appreciation. Not both
- Don’t rush. If you’re thinking about trying to do a no money down deal because you’re not willing to be patient, you’re setting yourself up for failure. Don’t make a risky decision just to get in the game. Make smart decisions to WIN the game.