If you’ve ever wondered “how can I buy a home with no down payment?” the answer is a definite YES! There are a number of ways you can buy a home without having a down payment. Each one of the sections below explains how it can be done.
BACK TAX SALE
Local governments around the nation depend on property taxes to fund their budgets. When those taxes are not paid, they hold tax sales. There are two kinds of tax sales, a tax deed and a tax lien certificate. Here’s an explanation of the two kinds. Check with your local tax authority to find out what kind of sale your community has and when the sales are held.
Tax sales put the property on the market for a tiny fraction of the fair market value of the house. Regardless of the sale, the end result is the same if the property is not redeemed-taxes paid, you own a house. What you paid at the auction is the purchase price of the house. Some states require a foreclosure, but this is much less than what you paid at auction.
If you ask “can I buy a home with no down payment and have a mortgage?” the answer is still yes, but doing so is not easy. First, you must have good credit. A zero-down mortgage through a conventional lender requires a credit score in the 700s. The higher your score, the more likely you will be to get a no-down mortgage. It’s going to cost you a bit more than if you have a down payment. The personal finance management blog Ready for Zero says this, “You’ll also have to be willing to pay a higher interest rate. The price you pay for having no ‘skin in the game’ is a mortgage rate that ensures that you’ll pay extra tens of thousands of dollars over the life of your home loan compared to borrowers who have down payments. You will also probably need to purchase private mortgage insurance (PMI).”
Just remember, you’re not stuck with that mortgage forever, You can refinance after you have built up equity in the house. That becomes your down payment in the refinance. If your credit stays good, you’ll be able to get an attractive interest rate.
BORROW THE DOWN PAYMENT
If you ask “can I buy a home with no down payment?” and you mean having no out-of-pocket expense, the answer is still yes. Borrow the down payment on by taking out another loan. Good credit is always helpful. With good credit, you might get a signature loan, meaning there’s no collateral needed; the bank gives you the money based on your word that you’ll pay it back. For those with less-than perfect credit, you may need collateral, like a vehicle or a boat, to guarantee the loan. Use this money for the down payment.
Make sure that your debt load, with the new loan, won’t prevent you from getting a mortgage. Go through a pre-approval process with a mortgage specialist to find out if this will work for you.
You may be able to get a down payment from relatives or friends. If you are a young person, just out of college and starting your independent adult life, your parents may be able to help you with a down payment. I recommend a written agreement, even if the money is a gift. That way there can be no argument later over that money. Credit also recommends getting something in writing, “The person giving the gift needs to show on paper a clear ability for them to gift money to the recipient. In other words, a friend of the person giving the gift can’t make a deposit in the giftor’s account without getting a clear and concise explanation including a gift letter and subsequent paper trail with bank statements showing where the funds originated and where the funds ended up.”
SELLER HELP – Contract for Deed or Contract Seller Financing
If the seller is going to make enough on the sale, they may be willing to lend a financial hand. This can be a straight loan, to be repaid over time, or the seller can carry a second mortgage for the amount of the down payment. This is not common, but it does happen.
Another way to involve the seller is owner financing. In this kind of sale, you buy directly from the owner. You make your mortgage payments to the owner. You and the owner decide what kind of down payment, if any, you need. The two of you also decide how payments, insurance and taxes will be structured.
Every state has a program to help people buy a house. Some programs offer forgivable down payment assistance. The federal government also has programs to help, especially first time home buyers and veterans. I discuss these programs in more detail here.
If you can get a no-down mortgage, considering buying a short sale. A short sale home sells for less than what is owned on the mortgage. It often sells for a bit less that than the fair market value. That difference in the price could make up for the extra money you may spend on PMI and a slightly higher mortgage rate, at least until you refinance.
Ted Thomas is a Florida-based author and publisher, who specializes in tax defaulted properties. Visitors to his website will find 4 must see FREE instructional videos. No credit card required. The video lessons will give you everything you ever wanted to learn about government tax defaulted real estate, which is sold at public auctions for a starting bid of back taxes, and you can buy property for 10 cents to 20 cents on the dollar. You will also learn the secrets of tax lien certificates which pay guaranteed returns of 16%, 18%, up to 36%.