difficult economy where stock valuations are questionable, one of
the best investments is real estate. But for many potential buyers,
the problem is coming up with a down payment to make this all-important
purchase. This should not be the case. It is possible to buy a home
with No Money Down, meaning no down payment. There are several methods
by which eligible home buyers can minimize or even eliminate down
payments. They include: VA loans, Owner financing, Lease/purchase,
House trading, Job-related federal programs, and State and local
Loans - The method
of purchasing a home with no down payment that most people are familiar
with is through the Department of Veterans Affairs, 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 including the Coast Guard are eligible.
Also members of Selected Reserves or National Guard who have completed
six years may be eligible along with many with WW II service from
the merchant marines, military academies and others pulled into
service for the war effort. Many older veterans may recall a time
when they were entitled to use this benefit only once in their lifetime.
This was changed in 1989. Now, the only existing stipulation is
that an eligible person may use this benefit on only one house at
a time. As with all VA loans, the house must be used as a primary
residence. It may not be a rental home or second/vacation home.
There is no maximum home loan amount. Nothing-down VA foreclosures
available to everyone What many people do not know is that you do
not have to be a veteran to purchase a VA foreclosure with nothing
down. VA foreclosures are available to the general public. Some
require nothing down or just a fee of $500. Although the homes are
sold from the VA, purchasers must obtain conventional or FHA loans
unless they are veterans or active military. VA foreclosures with
nothing down or $500 fees can be found among those from banks, lending
institutions and federal agencies.
Financing, Lease-Purchase - If a glut
of unsold homes develops in a market, some sellers -- especially
those in a hurry -- become willing to assist the buyer. There may
be additional pressure on sellers of used homes when they compete
with builders in their areas who fund down payments on new homes.
These sellers may agree to lease-purchase or owner-financing plans.
In both cases, purchasers do not pay down payments to acquire the
properties. Although they allow a home buyer to purchase a home
with no money down, 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 a "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 or she 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 flip side, 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 lessees bought the houses
from the sellers and then resold the houses for a large profit in
the same day.
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.
- The Office of Housing and Urban Development
(HUD) offers special financing for first-time home buyers. 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.
Federal Programs -
The federal government also has 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 1 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.
Programs - Some states, counties and
cities offer programs that can eliminate down payments. Often, prospective
home buyers must meet income requirements, hold certain jobs, be
a first-time buyer or agree to buy in a specific area. It can take
some sleuthing to find such programs. Start with your state's housing
agency. Your county or city also may have a housing agency. With
so many methods available to obtain homes with little or no down
payment, the goal of homeownership should be achievable by almost
everyone who desires it.
you, for your interest in No Money Down Options