No money down? Just why would a seller walk away when the closing costs are zero? To be truthful, they wouldn’t normally. So this brings up a very important fact concerning investing in real estate without a down payment. Sellers nearly always need cash at closing. This doesn’t mean it has to be ‘YOURS’ though.
Many times a seller is able to offer their terms with a low down payment, or even with NO down payment. But to pull this off, you need to be able to get no less than 70% of their asking price paid in cash. This will enable them to get some equity out as well as help pay off their existing loan. So for you to be in on the deal with no money down. you’ll need to be thinking in terms of a primary loan, and then a way to raise the rest of the money. Here are a couple of examples:
Some banks will still do a ‘no doc’ loan. This means they won’t require you to verify your income, or your source for you down payment. They most generally only loan 70 to 80 percent of the total property value, so you’ll need to find a seller who’s willing to take back a second mortgage against the other 20 to 30 percent, in order to make this a no money down type deal. They’ll get 70 to 80 percent in cash, plus some payments over the next few years. And you will now have TWO payments, so make sure that your numbers all work.
Here is another method of buying with no money. You borrow against the home or some other property so you’ll have the down payment. You may borrow to go on ‘vacation’, and then leave what doesn’t get spent in a checking account over some time. This way, you can use this money and not violate the banking rules for borrowing a down payment.
A lot of towns have people who are ‘note buyers’. They buy up land contracts and mortgage loans at discount rates. Whenever sellers take purchase money mortgages from a person for $100,000, the note buyer may pay them $85,000 for it. So just how does this help them? I’ll explain:
Let’s say a seller puts a price on a property of $190,000, and expects to turn it loose for $180,000. You go and offer them $200,000 which includes a $150,000 mortgage and another mortgage of $50,000. Included in your offer is a selling of this first mortgage when you close, for a note to the buyer for $125,000. Then the seller will get this much cash right now, and will be owed payment against the second loan of $50,000. The two loans added together will total $175,000 and is still close to what the seller originally expected to sell for anyway.