We all know that most of the funding for real estate transactions come from mortgage loans, as cash buyers are very rare. Most of the lending institutions require the borrower to arrange for a down payment (usually 20% of the purchase price), as a condition to secure the loan.
So, an average home buyer has to make this payment, and then qualify for the home loan. In other words, you must have at least 20% of the purchase price, for securing a loan, to buy that property. Is it possible to buy the property with no money down? Yes. You can go for real estate investment with no money.
‘No Money Down’ Concept
As mentioned above, borrowers have to make provision for down payments, in case of mortgage loans. Then, what is the meaning of no money down? Does it mean that you don’t have to make the down payment on a house? No. It denotes a down payment that is remitted with none of your money. In other words, the concept of ‘no money down’ simply refers to a down payment that can be made by money, which may be borrowed from friends or relatives or from a money lender. In short, you don’t have the money to make the down payment, but you borrow it from other sources. So, the concept of ‘no money down’ actually means a down payment made with money obtained from other sources. It can also be termed 100% financing, as you are buying real estate with none of your money.
How to Buy Real Estate With No Money Down
Now, you know that even if you resort to the concept of ‘no money down’, you have to make the down payment, but with the money obtained from other sources. What are the other sources? Here are some guidelines regarding the possible sources, from which you may obtain the money for down payment.
The easiest way is to borrow the required amount from your friends or relatives. You can pay them back in installments.
Another option for buying real estate with no money down is seller financing. The seller may agree to make the down payment, so as to sell the property as soon as possible. It may also happen that some sellers agree for a down payment, which is remitted as monthly payments with a higher interest rate.
You may also take over the seller’s existing financing as part of the purchase price for buying commercial property with no money down. In other words, you can buy the property in return of making the mortgage payments of the seller, regarding the concerned property. This will be beneficial for the buyer, if the interest rate of that loan is lower. However, make sure that you go through the documents of the existing loan, as some of the loans have a due on sale clause, which inhibits the new buyer of the said property from taking over the mortgage. However, the lending institution may not exercise this clause, even if it is incorporated.
There are some rental properties that are attached with an option to buy. In such cases, a lease option to buy home or option agreement is made, in which the owner of the property and the lessor agree for a specific sum to be paid at regular intervals and the latter is allowed to use the property. The lessor can purchase the property within the lease period for a predetermined price. It has been observed that a partial or total rent will be adjusted towards the purchase price.
Sometimes, personal property or professional services of the buyer can be used as a substitute for down payment.
Another option for buying real estate with no money down is to get a partner, who can dole out money for the down payment.
You may borrow against insurance policies or other property. You may also apply for down payment assistance for first time buyers.
Negotiate with the lending institution for a 100% financing. Otherwise, you may also opt for a second home mortgage loan, that can be used for down payment.
However, it will be always better to have a good idea of the various options, before adopting any of them. You have to think of the pros and cons, and then decide.