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Buying 101: Purchasing With No Money Down
October 21, 2007

Many of us have seen those late night infomercials promising that you can get rich by purchasing real estate with no money down. While purchasing real estate with no money down does have a few inherent risks, the ability to buy a home with no money down is a reality that you might want to consider taking advantage of. There are many ways to do this legally and ethically (even more illegally and unethically). In future articles I'll discuss many more ways but here are the first two elements you should investigate.

Getting the Seller to Pay the Closing Costs
One way to buy a piece of real estate without putting any money down is to ask the seller to pay for the closing cost. Even though you are asking the seller to pay for the closing costs, you will usually ultimately pay for the costs yourself. But, the good part is that you can put off paying the costs until later.

How does this work you ask? Really, it is quite simple. Let’s say you want to purchase a piece of real estate for $200,000. If you ask the seller to pay the closing cost, he or she will probably ask that you pay $206,000 for the home. That way, the seller can use the extra $6,000 he or she receives to pay for your closing cost. So, you are actually paying the closing costs because it is being wrapped into the amount of your mortgage loan. Nonetheless, you are getting out of paying that cost upfront. This technique is usually referred to as "Seller Assistance" and many lenders have put maximums on the amount you can get back from the seller but it certainly is a viable option.

Exploring Loan Options
Many of us have heard that you must have 10% of the cost of the home as a down payment when buying real estate. A few years ago there were hundreds of loan programs available to home buyers were you could put up less than 10%. Many were as low as 0% down. Although these mortgages have all but dried up there are a few options out there to look at. The 80/20 loan is one of the best ways to get out of paying a down payment when you buy a home.

With you buy real estate with an 80/20 loan, you are actually using two different loans. The first is a mortgage loan to pay for 80% of the cost of the house while the other loan covers the remaining 20%. In some cases, your total monthly payment may actually be less when going with an 80/20 loan rather than a conventional loan. In order to qualify for this type of loan a few months back you generally needed to have a credit score of 620 but today it's probably something like 680 or more. The other great advantage to this loan is you avoid "Mortgage Insurance" which is usually added to loans that have an LTV greater than 80%.

Conventional loans are also available with the “zero down” option. Similarly, you can explore subprime zero down loans if you have poor credit. Unfortunately, these options often lead to higher interest rates and have really become harder to come by in recent weeks. This is particularly true with subprime loans. For this reason, you might want to look into low down payment loans instead. The 3% down loan is a popular choice because it still allows you to put only a small amount down on for the loan but provides you with a much better interest rate. Even if you do not have a substantial amount of money saved up for the purchase of a home, you can still make your dreams of homeownership a reality. Look into the various options available to you and there will certainly be one that suits your needs.