In these hard economic times where we never know how far the stock prices will dip from one day to the next, one of the smartest investments is the real estate market. For lots of potential real estate buyers a down payment stops them from considering this investment opportunity. This doesn’t have to be the case though as it is very possible to buy a home with no money down.
VA No Money Down
Many people are already familiar with the VA’s no down payment deal. The Veteran’s Administration makes this available to active and retired members of the military, veterans, POW’s and MIA’s and their unmarried widowed spouses. All military branches are included in the VA’s no money down home buying program.
$10,000 Down Payment Gift Program
Another good opportunity for potential homebuyers to obtain a home with no money down is through a down payment gift program. Gift down payment programs offering up to $10000 or 5% of the purchase price, or whatever is lower are not required to be repaid. This is truly a gift program.
These gift programs are available to all home purchasers. They don’t require any income limits nor do the home buyers need to be considered as first time homebuyers.
Eligible homes for this programs can be anywhere in the United States and can be used as owner occupied, primary residences including: houses, condominiums, town homes and manufactured homes. However the home can’t be used as an investment or rental property. Duplexes and four plexes are eligible if the buyer will be living in one of the units.
New construction qualifies so the homes don’t need to be pre-owned to qualify. These gift funds can be used on any HUD or FHA loan for the down payment money. HUD loans are based on need but FHA loans are not.
An FHA loan is available to most borrowers and are mainly restricted by the loan amounts. The FHA loan maximum will vary from state to state but generally are higher than the medium home prices in the area. Every year the FHA maximum allowable loan amount increases, so it’s recommended to check with the lender on the current amount available. FHA does allow down payments gifts in the loan consideration.
The one restriction on the down payment gift funds is that they can’t be used to pay off any type of judgment or debt but must be used for the down payment of a home.
Sellers of homes using the gift down payments are funding this program. They contribute a portion of the proceeds from the home to a pool of funds that’s used to provide gift down payments in exchange for finding a buyer for their home at the full asking price. Because the homes must meet HUD or FHA appraisal guidelines, homes are never overpriced and have to meet all repair and condition requirements.
Down payment programs can help get lots of people into home ownership without the worry of a down payment. There are two other methods of seller participation that can also accomplish this same goal, owner financing and lease/purchase agreements.
Owner Financing/Lease Purchase
As the surplus of unsold homes grows, many times the sellers are willing to take on part of the burden to get their home sold quickly. Also there could be added pressure on sellers of used homes when they have to compete with builders in the area who fund down payments on their newly constructed homes. So sellers might agree to a lease/purchase or owner finance deal to sell a home. In either case, the buyer doesn’t need to pay a down payment to get a home.
Though these options will allow a homebuyer to purchase a home with no money down, there is a good side and a bad side for the buyer so this option needs to be approached carefully.
Since this is a legal transaction, a standard legal form should be used. Lease/purchase forms are available at most major office supply stores. Owner financing contracts are not easily obtainable and will need to be drafted by a lawyer.
With a lease/purchase agreement, the seller is agreeing to a price that the home will sell for at a future date and the buyer will typically pay a monthly amount several hundred dollars more that what the home would rent for on a monthly basis. Depending upon how the agreement is written, the additional money can be a down payment type of savings plan. A portion of the additional funds can be given back to the buyer when the home is sold and used as the down payment. If the buyer decides not to buy the home, all the additional monies are forfeited. If the buyer decides to buy the home then they would secure a mortgage from a lender. This type of arrangement is similar to owner financing except in that case the seller is the lender.
There are two primary areas of concern for the buyer with these types of buying options. In both cases the buyer is not paying a mortgage to a mortgage company so the benefit of any tax deductions for the interest paid on the home is lost. This might be an acceptable trade-off for the opportunity to purchase a home with no money down. The other area of concern calls for more judgment. Since the buyer is paying the seller each month instead of a mortgage company, if the seller goes bankrupt or looses the home to foreclosure, the buyer’s entire investment could be lost.
On the other hand, there have been many occasions where the parties have entered into the lease/purchase agreements and then found buyers for the homes at amounts much greater than the selling prices contractually agreed on. The leases bought the homes from the sellers and then resold them for a large profit on that same day.
House Trading/Lines of Credit
Professional real estate investors will also acquire homes with no money down by trading one property for another. And in some cases they trade a larger property for several smaller rental properties. The may also trade homes in different cities to obtain a vacation or retirement home. Property trading is also a legal means to avoid the capital gains associated with selling property.
Securing a line of credit by using the equity in another property is also another way to buy a property with no money down. This lets the homeowner buy another property by using the accumulated equity in a home without selling the original property.
The office of Housing and Urban Development (HUD) offers special first time homebuyers financing. The program is based on need and is designed to allow low-income families to obtain their first home without a substantial down payment or closing costs.
Rural Homes/Cops in Neighborhoods
There are two programs by the federal government that help farmers and police personnel to buy homes with no money down.
For buyers with limited income who desire to live in rural areas, the Rural Economic and Community Development Administration offers farmers home loans with no money down. Monthly payments can be subsidized and the interest can be as low as 1%.
To encourage law enforcement personnel to occupy homes in crime targeted areas, there are special federal programs that allow police officers to buy homes in select areas with nothing down. Law enforcement officers can obtain this information at their place of employment.
With all these methods in place to buy homes for little or no down payment, the dream of owing a home should be achieved by nearly everyone who desires it.