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No Money Down

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Article by Al Lowry

A no-money down offer means that the buyer is buying using none of his or her personal money. Someone else is supplying the money. This could be the seller, a lender, a partner, an investor, or other entity. This does not mean the seller does not receive a cash commission/ buying for no money down, if done correctly, is a win/win situation for everyone involved.

If people tell you that you can’t do it, remember that the reason they tell you this is that they don’t know how to do it themselves. If an agent tells you that you can’t buy real estate for no money down anymore, ask that agent if he or she has ever sold a home with VA financing.

Let’s take a property with a value of $100,000. this property can have an existing loan on it, or no loan at all, but most properties have some sort of loan already on them. If this is the case, the loan can either be taken over by a new buyer, or it must be paid off when the title is transferred. If it cant be assumed, this can be done with or without qualifying.

When a loan is assumable “without qualifying,” that means that anyone can take over the loan regardless of person circumstances. A person can have bad credit and no job or income and still take over the payments on that existing loan.

If a loan is assumable “with qualifying,” the person taking over the existing loan must qualify and be accepted to do so by the existing lender. Credit and income will play a part as to whether the person will be able to take the loan or not.

If a loan is not assumable, the purchaser or investor can’t take over the existing loan, and if you are the investor or buyer, you must find new financing. If new financing is required, a lender will qualify both you and the property for a loan. If the property is an income property, the lender will also take into account the net income of that property in qualifying you.

Lets say that the $100,00 property has an existing loan balance of $60,000 and $40,000 in equity-equity is the difference between what the property is worth and what you owe, not necessarily what you paid. If we are going to buy this property for no money down, we need to solve the $40,000 difference between what is presently owed and the sales price, somebody else will have to provide us with the $40,000. let’s look at a few options that can solve this problem

  • The buyer can take over the existing $60,000 loan with the seller taking back a note and mortgage for $40,000 secured by the property. The buyer makes payments to the seller on the note.
  • The buyer can take over the existing $60,000 and give the seller a $40,000 note secured by something the buyer owns.
  • The seller can sell on either a wraparound or contract of sale. In this case, the seller remains responsible for the $60,000 loan, but now he has a note mortgage from the buyer for $100,000.
  • The buyer can refinance the existing loan to $80,000. this $80,000 goes to the seller at closing. The seller pays the balance on the existing $60,000 loan and keeps $20,000 in cash. In addition, the seller takes back a note for $20,000 (the difference between $80,000 and $100,000). This note is secured by a mortgage on either the buyer’s property or something else the buyer owns.
  • The seller could refinance to $80,000 and sell on a wraparound or contract for sale or with the buyer assuming the loan and the seller taking back a note for $20,000

In each scenario, the seller is willing to be flexible and work with the buyer. But what happens if the seller insists on all cash? If the seller insists on all cash, the buyer should purchase at a discount.

Or, if the buyer qualifies for a VA loan, it’s possible to obtain a new $100,000 loan, giving the seller all cash. Again, the buyer buys without using personal money. If the buyer is purchasing a home to live in, the buyer might also obtain an equity loan after closing. Lenders will loan up to 10 percent of value or what the person paid.

Given the right set of circumstances and the cooperation of both the seller and agent, buying and selling for no money down is easy.

If your desire is to become financially independent, it is important that you learn how to use no-money-down techniques when buying and selling real estate. Then you can create your own stepladder to success.

Albert J. Lowry, Ph.D. is a best selling author and internationally known expert in real estate investing. He mentors one-on-one and gives seminars throughout the U.S. and across the world. More than 350,000 students have taken his courses. Al Lowry is a guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.

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