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.
