Nothing Down Home Buying

In this difficult economy where stock valuations are questionable, one of the best investments is real estate. But for many potential buyers, a down payment keeps them from considering this all-important purchase. This should not be the case. It is possible to buy a home with nothing down—meaning no down payment.

The method of purchasing a home with no down payment that most people are familiar with is through the Veterans Administration or VA. This benefit is available to active and retired members of the military service, veterans, POW's and MIA's and their unmarried widows. All branches of the service are included.

$10,000 Down Payment Gift Program

Another opportunity for many potential homebuyers to purchase a home with no down payment is through a down payment gift program. Gift down payment programs of up to $10,000 or 5% of the purchase price, whichever is lower are never repaid. They are a truely gifts.

These programs are open to all homebuyers. There are no income limits and the home purchasers do not have to be a first-time homebuyers.

Homes that are eligible can be located anywhere in the United States. It can be used on any owner-occupied, primary residence including: homes, condominiums, town homes and manufactured homes. Although it cannot be used for investment or rental properties, duplexes and four-plexes are eligible if the purchaser will reside in one of the units.

The homes need not be pre-owned to qualify for the program. Newly constructed homes are also included in the program.

The gift funds can be used on any FHA or HUD loan for the down payment. Although HUD loans are based on need; FHA loans are not.

FHA loan are available to most borrowers and are primarily restricted by the loan amounts. FHA loan maximum amounts vary from state-to-state but are generally higher than the median price of a home in their areas. Each year the FHA maximum allowable loan amounts increase, so it is best to check with your lender on the current amounts available. FHA does permit down payments gifts in their loan consideration.

The only restriction on the down payment gift funds is that they may not be used to pay off any kind of debt or judgment. They must be used for the down payment of a home.

Sellers of homes using the gift down payments fund the program. In exchange for finding a purchaser for their home at their full asking price, they contribute a portion of the proceeds from the home to a "pool" of funds that is used to provide gift down payments for others purchasers. And because all homes must meet FHA or HUD appraisal guidelines, homes are never overpriced and must meet all repair and condition requirements.

Down payment programs can move many people into homeownership without the necessity of a down payment. There are two other methods of seller participation that also can accomplish the same goal: owner financing and lease/purchase agreements.

Owner Financing/Lease Purchase

As the glut of unsold homes increases, many times sellers are willing to carry part of the burden to sell a home quickly. There may be additional pressure on sellers of used homes when they compete with builders in their area who fund down payments on their new homes. Sellers may agree to a lease/purchase or owner finance plan to sell a house. In both cases, the purchaser does not pay a down payment to acquire the house.

Although these allow a homebuyer to purchase a home without a down payment, these programs can be good and bad for the purchaser and should be approached with caution.

As with any legal transaction, you should use a standard legal form. Lease/purchase forms are obtainable at most major office supply stores. Owner financing contracts are not readily available and will have to be drafted by an attorney.

In the case of lease/purchase agreements, the seller agrees to a price that he will sell the house for at some future date and the buyer usually pays a monthly amount several hundred dollars more than what the home would receive as a rental. Depending on how the agreement is written, this additional money can be "down payment" savings plan. A portion of the additional money can be returned to the buyer when the house is sold and used as a down payment. If the buyer decides not to buy the house, all additional moneys are forfeited. If the buyer decides to complete the transaction he would secure a mortgage from a lender. These arrangements are similar to those in owner financing except in that case the seller is the lender.

There are two areas of concern for the buyer with these types of purchasing options. In both cases, because the buyer is not paying a mortgage company he does not receive any of the tax deductions for the interest on the house payments. This may be an acceptable trade-off for the ability to purchase a home without a down payment. The second area of concern requires more judgment. Because the buyer is paying the seller each month instead of a mortgage company, if the seller were to go bankrupt or lose the home in foreclosure, the buyer's entire investment might be lost.

But on the flipside, there have been several occasions where persons have entered into lease/purchase agreements and then found purchasers for the homes at amounts much greater than the selling prices contractually agreed upon. The leasees bought the houses from the sellers and then resold the houses for a large profit in the same day.

House Trading/Lines of Credit

Many professional investors acquire homes with no money down by trading one property for another. In some cases, they trade one large property for several smaller rental properties. Or they trade houses in different cities to acquire a vacation or retirement home. Property trading is also a legal way to avoid the capital gains associated with selling a property.

Another way to acquire a property with no money down may be with a line of credit secured by the equity in another property. This allows the homeowner to purchase another property using the accumulated equity in a home without selling the original property.

HUD

For first-time homebuyers, the office of Housing and Urban Development (HUD) offers special financing for first time homebuyers. This program is based upon need and is designed to allow low-income families to obtain their first home without a significant down payment or closing fees.

Also, many HUD foreclosure homes require no down payments. Many HUD foreclosures as well as bank and other foreclosures can be found at www.foreclosure.com

Rural Homes/Cops in Neighborhoods

The federal government has two programs to help farmers and police personnel acquire homes with nothing down.

For those with limited income who wish to live in rural areas, the Rural Economic and Community Development Administration offers farmers home loans with nothing down. Monthly payments may be subsidized and the interest can be as low as one percent.

To encourage police to occupy homes in crime-targeted areas, special federal programs permit police officers to purchase homes in selected areas with nothing down. Information is available to law enforcement officers through their places of employment.

With so many methods available to obtain homes with little or no down payment, the goal of home ownership should be achievable by almost everyone who desires it.

By Elaine Zimmermann author of "Secrets of Foreclosure Millionaires".