The Facts About Buying Property With No Money Down
By Jerry Glynn
You may have heard of offers that claim to let you purchase real estate without having to make a down payment. While there are a lot of offers out there that are little more than outright scams and therefore should be avoided, there are also a few that actually make good on this claim. Some of the more realistic no money down real estate deals that you can expect to run into in the current real estate market are described below.
In the first scenario, the buyer gets a new first mortgage for the bulk of the of the total purchase price. The rest of the amount will then be financed by the seller. This solution is more feasible if the seller has enough equity in the property, and is willing to hold a second mortgage.
To make this arrangement work, you should talk to your lender beforehand and find out the availability of financing options that allow a seller second. You will want to go with a lender that is experienced in investment property loans.
Another way to avail of no money down real estate is by using one of the low or no down payment programs available. While many of these are available only to owner occupants, there are a few that are available for real estate investors. Again, talking to the right lender is a crucial step in this procedure.
When going for this option, you may want to consider taking on a second mortgage at the rate of 5-10%. This is not an unreasonable amount in itself, and it may actually help you sell your property off much quicker.
Recently, one of the more common ways of securing no money down real estate to come up is by purchasing wholesale properties with cash with the goal of fixing it up. Once all the repair work is done, the buyer then secures a new mortgage in order to pay off the cash loan. Since this legally qualifies as a refinance, the buyer can take cash loan out of the property. While the buyer will have to pay a certain amount of money to close on the hard cash loan, he or she will get all of it back upon refinancing, so the result is that no money was actually spent. This then results in something better than a no down payment real estate deal, which is a "cash back at closing" arrangement.
Keep in mind that the definition of down payment is the money that is used to initially "pay down" the total purchase amount. This sum does not include money for various other expenses such as closing costs, points, interest, and insurance. Buying wholesale properties with the goal of fixing them up and then refinancing them to pull cash out should result in the buyer being able to pay off all expenses and realize a respectable profit besides.
While true no down payment real estate deals are in the vast minority nowadays, the inevitable rise of interest rates in the future will probably result in a lot more opportunities for creative financing and no down payment deals in the future.
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