Forgot your password?

First Time Homebuying With No Money Down - No Down Payments or Closing Costs

By Edited Jan 24, 2016 4 7

Buy A Home With No Cash Upfront

No Money Down(114378)
Did you know that if you're a first time home buyer, that you may not have to put any money down upfront and make no down payments? Even better, you could get around having to pay closing costs, which can be very expensive in states like New York and California. Buying a home without putting any money down is possible, and I will show you how to do it here.

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

No Money Down
ersonally looking to buy a home within the next 6 months - my price range is $200,000 to $260,000. Let's say I find a home listed for $240,000 and make an offer. This is what you can expect: 3.5 percent down payment with FHA equals a down payment of $9,100.

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.

Getting a Piggy-Back Second Loan for Down Payment on a Home - Remember, the goal here is to pay no money down for your first home. What I intend to do now is either get a second "piggy-back" loan to pay either the entire down payment OR use a credit card at 10 percent interest to cover half the loan.

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.

Make Money(114379)
So if you play the numbers right it is very possible for a first-time homebuyers to buy a home with absolutely no money down, and then make money each month! While you will still probably end up paying some money on repairs and maintenance, you have to admit that this is still a pretty sweet deal. You will build up a ton of equity by sharing your house and renting it out, and then you might consider selling it when the market turns up - for a huge profit!

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!



Nov 6, 2012 6:31am
I like your technique on the closing costs, thanks for that idea. It seems to me however, that in your scenario, a person is still paying a down payment just as before. They're actually putting themselves in a worse position for going upside down on the house if they're financed at 100% right? Rather than paying a down payment out of cash onhand (assuming the buyer has some) the buyer would take a second loan, increasing their monthly debt repayment. Forgive me if I missed something.
Nov 6, 2012 10:36pm
I agree with Migreig, I do NOT like the sound of that "second piggy-back loan at approx. 10%" at all. In today's rates, that basically equals you have the primary mortgage payment on your first house, then you have 3 MORE mortgages on that same house, you're making 4 times the regular mortgage payment! (this is going by mortgage rate of 3.3%, which is very realistic in today's market, divide 10% by 3 mortgages =3.3%)

I, personally, in my financial situation, would NOT go for this "no downpayment but you gotta take a second piggy-back loan at 10%'' deal. I would rather put a little money upfront, it's toward an investment, anyways, and enjoy the long-term savings by not making those interest payments per month, which will a a huge difference over life of 30 year mortgage.

NOW, that is not to say SOME people wouldn't be interested. People that have no immediate money/savings to put a down payment might be. This is method may be tempting for those, but, I think if most people just calculated out the long-term difference between paying down payment and this no-down-payment method, most people will see the light.... (unless they have some investment idea/special situation where that down-payment-money would be better spent in an investment that returns more than the sum of the debt...)
Nov 6, 2012 10:39pm
By the way, active duty military and veterans can enjoy the benefts of no down payment, through a VA Loan, without any of the above mentioned negative side-effects/fine print. One of the perks of serving your country, which i feel is very deserved and the least we can get in return for our service.
Nov 7, 2012 8:03am
Thanks for commenting. I agree that this strategy certainly isn't for anyone. The example I gave of how it could be done included renting out some of the rooms in the home to help pay the mortgage and taxes plus extra debt from the second-loan. So this could be good for a single man or an investor with extra money but certainly I would be cautious for a couple. I am considering using this strategy of little to no money down for leverage and to stay in my current investments and not have to sell them.
Nov 11, 2012 12:12pm
I'm in the first-time-homebuyer category which is why I was interested in this article. I've had several friends buy homes. From what I understand, they want to see that you have money in the bank. And that it stays there for the whole application process. There is also the matter of having a debt ratio. You have a certain amount of credit out when you begin the mortgage process. You get a credit card while you're applying for a mortgage and it will not be looked on favorably. It's a complicated and convoluted process buying a house - and I think the bubble popping made it worse.
Dec 15, 2012 3:15am
I'm in the mortgage business....Have you received an approval from a lender yet? I think you'll have trouble getting one to accept a credit card payment (which is considered a loan) for the down payment. FHA guidelines do allow for a gift (not a loan) to cover the down payment.
Jan 3, 2013 5:47pm
I would sure love it if houses were 260k where I live! Out on the good ol' West coast of Canada a decent single family home is over 500k.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money