Buy A Home With No Cash Upfront
How Can I Buy A Home With 0 Percent Down? – After the US housing bubble burst I 2008 and home prices collapsed, banks and lenders really started to tighten up their lending requirements. You could have gotten a 0 percent down mortgage easily before 2008, but things have changed. However, this doesn’t mean it’s impossible to get a mortgage without putting any money down – it’s just harder.
Here is my own personal plan on how I will be buying a home with very little to no money down upfront:
First step – you do need good credit, preferably over 700. What is an FHA mortgage loan? The FHA is known as the Federal Housing Administration, and they insure mortgages on single family and multifamily homes including manufactured homes and hospitals. And they can help you achieve this goal of putting zero money down when buying your first home!
The FHA makes it easier to do this by giving you a super-low down payment for first-time homebuyers (3.5 percent), and most of your closing costs and fees can be included in the loan as well.
Example of How Much You Can Expect to Put Down Upfront When Buying First Home
So I am p
Closing costs for me would be in the range of $10,000 to $15,000 - not too great. This is New York and closing costs are high here. So, Here's where you need to get creative.
Don't lowball the offer - tell the owner you will pay his or her exact asking price. But tell them you want them to cover the closing costs! Since you are not low-balling, and paying the exact asking price, it is not unreasonable to ask this of the owner. I would say there's a great chance they will agree to the offer.
What Interest Rate Can You Expect to Get on Your Mortgage? - A 30-year fixed mortgage is most likely your best bet here - I would expect with today's super-low interest rates that you'd be able to lock in a 3.6 - 3.8 percent interest rate. We will go over all of the numbers later on.
EXAMPLE: Four-Bedroom, 2 Bathroom Colonial Home Price - $260,000.
Down Payment - $9,100. Mortgage - $250,900. Second Loan - Either half the down payment or the full amount. We will do the full amount.
Alternative Loan Financing Options for Paying Your Down Payment on a House -You may also want to ask family or close friends to help you pay your down payment costs - maybe they will be willing to lend you money at a lower interest rate then your credit card rate would be. For this example we will use a second loan at 10 percent interest
Here are the final numbers on what it would cost you to buy a home with no money down, per month. This doesn't include any maintenance or repairs the home may need:
*Breaking Down the Final Numbers*
Home Price - $260,000
Closing Costs - None (Owner Agrees to Pay).
Down Payment With FHA - 3.5 percent ($9,100) COVERED with a second piggy-back loan at approx. 10 percent interest.
Mortgage - 3.8 percent 30-year fixed ($251,900).
Monthly payments on mortgage (3 percent monthly taxes and insurance included) - According to Trulia.com, you can expect your total payments to come out to $1,767 a month.
Second Piggy-Back Loan Payments - Approx. $120 month.
TOTAL PAYMENT ON HOUSE PER MONTH WITH NO MONEY DOWN - $1,887 (This seems like a lot but I will show you why it's not below).
How to Buy Your First Home and Live Free and Clear - So now you know the costs associated with buying your first home. If you are a single guy like myself, you may want to consider renting out the rooms to help pay your mortgage and expenses. If you are a couple, you can still at least rent out two of the rooms. Or you may want to consider buying a multi-family home and renting out the other unit, so you have more privacy.
This home I have listed as an example happens to be a real home that I am seriously considering purchasing. According to comparable homes in this area, I can expect to rent out each bedroom for about $700 a month. With the other three bedrooms in this home fully rented, I can expect $2,100 in rent:
$2,100 rent - $1,887 expenses = $213 positive cash flow.
Why Purchasing Real Estate is a Great Idea and Why Real Estate is Still the Best Investment - I have been bullish on real estate since 2010. Ever since the housing bubble burst in 2008, home prices have collapsed. I feel strongly that housing prices have bottomed in 2012. I also really like the idea of getting a 30-year fixed interest rate mortgage under 4 percent. Since inflation is around that 4 percent range, that is basically free money.
The Federal Reserve has come out and said they will not raise interest rates until at least late 2014 or early 2015 as well, to boost the economy. So you have some time to lock in these ridiculously low rates.
In my opinion, there is a ton of money to be made from investing in real estate, but you have to invest for passive income and not capital gains. Please read this article I wrote on real estate investing which goes into much further detail.
I hope you enjoyed this article on first time home buying with no money down. Best of luck!