No
Money Down
In this 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 nothing
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 government programs.
VA
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.
Owner
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.
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
- 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.
Job-Related
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.
Local
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.
Thank
you, for your interest in No Money Down Loans.
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