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Houses Under Fifty
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Buying A Home With No Money Down
Four Ways
Is buying a home with no money
down a practical goal? Actually, it has become easier than ever.
But unfortunately it has also become more necessary than ever,
since fewer and fewer people seem to be able to save money. In
fact, I would like to respectfully suggest that if you need to
buy your home with no money down, you may have a more general
problem with your finances that needs to be worked on first.
But in any case, there are times when it makes sense to eliminate
that down payment, so let's look at four ways to do it.
1. Use credit cards. Here is
a great way to get into more financial trouble or, if you handle
it right, a good way to stop spending your housing dollars on
rent. Get a $95,000 loan on a $100,000 condo, for example, and
you only need $5,000 for the down payment. Now you just need
a cash advance on a credit card when there is a low-interest
promotion.
Of course, you can't "borrow"
for a down payment according to many lender's rules, so get the
cash advance a few months earlier for a "vacation,"
which can be a $20 taxi ride downtown. Leave the rest of the
money in your checking account until it is time to buy a house.
Since a lender can't read your mind or know what your intent
was, this is legal. But is it unethical? Hmm... Lenders encourage
you to take out unsecured loans for vacations and depreciating
assets like cars and boats, while saying you shouldn't borrow
for a down payment on a home. Perhaps THAT is unethical, but
playing by the rules and repaying everything you owe is not unethical
in my book.
Have plan to quickly repay
the cash advance. You could, for example, commit to using $2,000
of your tax refund to repay the balance, and also pay $150 on
it each month. You'll have it paid in less than 2 years this
way, and if you can't do that, you're probably just creating
more problems for yourself by using credit cards.
2. Have the seller finance
it. Since they typically need at least some cash, how can a seller
provide all the financing? You can create two notes, one for
him to sell, as in the following example.
A seller is asking $220,000
for his home, and expects to get about $210,000. He needs at
least $150,000 in cash to pay off his $130,000 mortgage and have
some "traveling" money (for whatever). You pay $240,000
for the home, in the form of two mortgage notes, one for $200,000
and the second for $40,000. You have arranged for a "note
buyer" to buy the first from him for $170,000 at closing.
He gets $170,000, plus payments
on the other $40,000, meaning he got the $210,000 he expected.
However, you did overpay for the home - necessary due to the
steep discounting ($30,000) on the sale of the first note - and
you'll have two monthly payments. So there are only certain times
when this technique will make sense (like when you can rent a
property for more than what the two payments and other expenses
add up to.)
3. Have the seller finance
part. Get a mortgage loan for 90% of the purchase price, and
make payments to the seller on a second mortgage note for the
other 10%, and you have a no money down deal. Sellers may only
be willing to do this if you pay full price or close to it. Also
lenders on the first mortgage may not agree to it, so ask.
4. 100% first mortgage loans.
Some lenders still do these (it is mid-2007 as I write this).
If the seller will pay closing costs, you won't need much cash
at all. Of course, you'll probably pay higher interest rates
for these loans.
A seller usually needs some
cash. They get it in every example above, but you may have noticed
that it doesn't have to be your money. Think about "no money
down" as "How do I give the seller what he needs without
using my own cash." This is the key to buying a home with
no money down.
Houses Under Fifty Thousand
| Buying Home - No Money Down |