Is No Money Down Real Estate a True Option?

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate

Late night news is constantly airing shows with stories of ‘nothing down.’ Could they really be true? If the answer were yes, would it be possible to purchase real estate without ‘money down’? Many people opt to acquire real estate when they have no ‘money down’ often when they are broke, since it is a good way of gaining access to credit. However, it should be noted there is nothing special about this way of buying property. In spite of this, if one can buy real estate   at a lower rate without ‘money down’, then one will have made a good deal.

One shortcoming of buying at below market rates is that lenders usually impose strict regulations on loans. Most guidelines for loans require one to invest 20% of their own money as down payment. This still applies even in instances when the buying price is half of the property’s assessed value. In effect, the loan–value rules are pegged on assessed value or buying price depending on which one has less value. A common illegal procedure is one where the purchaser gives a down payment but the seller gives it back later without any legal bearing. Even worse is when the property goes through a faulty assessment leading to full financing of the asset at its value. Many often escape prosecution but under the law, it is considered fraud and could get one jailed.

It is clear that there is a proper and wrong way of buying without ‘‘money down’. A real life example is that of a buyer interested in buying a house but does not have enough money. One might be having a new business, which disqualifies him from getting a FHA loan with low down payment .One should look for a property for sale which has low equity and whose seller has a loan with low interest. One can lease the house at a rate of $1200 per month with an option of making a purchase at $162000 while the house is valued at 179,000. The person selling the house agrees on a lowered price as he saves on commission charged on real estate thus, settling all financial entitlements amicably.

The deal ensures that the seller will give $300 or 25% credit on the buying price for every payment of rent that one makes. One can also advance $1200 as a security deposit that is to be credited on the buying price when the decision to buy the house is reached. After one year, the house has increased its value to $189000. If this is not the case, one may have done some renovations that increased the property’s value. One’s ‘equity’ will go up because of the monthly $300 rent credit. After one year, the equity value will be $ 31,000. It is always advisable to make the choice of buying a house at its initial price minus the credits.