Why some people almost always get the lowest interest rate on their mortgage… and never pay too much in points or “junk fees” If you want a mortgage with the lowest rate… for the lowest points and fees…here’s exactly how you do it!

Image by Ol-Jerr

In today’s slow real estate market, Realtors and sellers are trying anything to capture buyer’s attention. A quick flip through your real estate for sale section in the local newspaper and you’ll find no shortage of ads that read “0 down.”

These attention-grabber ads are usually meaningless and only used to capture a lead . . . you.

Try calling on one of these ads and inquire about the 0 down option. Without a doubt the answer you’ll get from the listing agent is the 0 down option is based on a certain credit score and lender approvals.

What a waste of your time. I could of told you that and I don’t even know you.

Today I’m going to show you a few real methods of buying a house with little or no cash out of your pocket investors use every day.

Some of these your Realtor will say, “no way” and lenders will not accept.

Don’t be discouraged. These are techniques that actually have been used and your Realtor may need to be taught. Remember, Realtors are not trained investors.

As for those lenders, if one doesn’t accept your plan, you have hundreds of others to choose from. I once wanted to offer my car as a down payment. One bank said no, the other didn’t care.

Covering That Down Payment

There are many methods for dealing with down payments. Every situation is a little different. The key is to think unconventionally, be observant, and become knowledgeable in what you can do.

Hint: Watch for rental properties and lease-options. These are usually good buys if the owner will sell because the seller typically won’t need to sell the house in order to buy their next residence. In other words, they won’t need cash up front to buy that next house to live in.

Also, keep in mind lenders like to see at least a 5% – 10% down payment on primary residences.

Here are a few methods I’ve used or others I know have used to partially or fully cover down payments (true “no” or “little money down” methods):

Method 1 – Find a house where the house and purchase itself can make part of the down payment

For example, maybe there’s an old car up on blocks that the seller would be willing to throw in with the house. It never hurts to ask. Here’s some items you may want to include in your offer that the seller throw in with the house: appliances, car, furniture, lawn equipment, expensive art, tools, motorcycle, etc.

In this scenario, what you would do is find a buyer for these items before you close on the house. Then contract these items for sale with the buyer and have the buyer place their check and contract in escrow. At time of closing, you sign the papers to buy the house and those assets become yours. You then sell those items to your buyer and use that money to pay toward your down payment.

It’s simple, it’s fast, and it’s smart. Imagine the bragging rights you’d have.

Method 2 – Substitute an investment for cash

Sometimes sellers will accept an investment as a down payment instead of cash. This kind of seller would be looking to invest proceeds from the sale of their house in “something.” They just want their money to go to work for them.

If you can find an investment the seller would want and you can buy it at a discount (people sell notes all the time), the seller may be willing to accept the face value of the note as down payment. Therefore, you could find a note, for say $50,000, and buy it for $37,500 today (75% face value). That’s a $12,500 difference.

Here’s how it works. There’s a little math here, so keep sharp (sorry, I have a math degree).

Let’s say you’re buying a $200,000 house and your bank requires you to make a 5% down payment ($10,000). The note you found has a face value is $50,000 and the seller has agreed to accept the note as a $50,000 down payment. You have agreed to buy the note from a 3rd party for 75% of its face value ($37,500) and the agreement is put into escrow.

At time of closing here’s what happens:

The difference between $200,000 and $190,000 is your $10,000 down payment you just pulled out of no where (it’s included in the note you gave the seller). And you even have $2,500 to cover your closing costs.

If you’re confused, let me know in the comments and I’ll try to explain it better.

Method 3 – Buy under a lease-option

Lease-options are great contracts to get into if you’re unsure how the market will go and you don’t have a lot of up front cash. In a typical lease-option, you rent the property from an investor with an agreement that after x number of years you have the option to buy the house with a portion of your rent payments being applied to a down payment.

This is also known as paying a down payment over time.

The great thing about this method is it’s relatively safe. If the market sinks, you can just walk away. If the market skyrockets, you get to buy the house at yesterday’s price and have part of, if not all, your down payment covered.

Hint: Here’s a quick way to make a profit with lease-options if you aren’t planning on buying the house. Find a buyer for the house a month or two before your contract is up and you must decide to buy, keep renting, or walk away. If your purchase price is $200,000 and in 2 years you’ve made a down payment of $10,000 through rents, try to sell the house for more than you owe.

If you can buy the house for $190,000, try to get the seller to pay your closing costs. Then find someone who will buy the house for $200,000 and buy and sell the house at the same time. You walk away with a quick $10,000. Uh . . . what were we saying about bragging rights?

Method 4 – Get the seller to finance the down payment

Talk the seller down 10%. Then tell them you’ll pay that extra 10% provided they take it as a note with no or very little interest and payments, balance due in a five years. Why wouldn’t they take it? It’s free money to them.

In five years you refinance and pay off your note to the seller.

Method 5 – Find a cash partner

This one’s easy. Find an investor with some cash (maybe it’s the seller). If you have good credit, they’ll probably want to work with you. Go in on the house together and split the equity in some fashion. Just make sure the agreement is due to end after x amount of time.

Method 6 – Owner financing

If you and your Realtor have really done your homework, you may find a house that someone owns free and clear. The best situation is when it’s a property they inherited and don’t need to sell in order to move into their next residence. You might even be able to convince the owner to finance the entire property for you, no banks involved. The terms can be discussed on a personal level.

Method 7 – 100% bank financing

If your credit is good enough, you may qualify for 100% financing. Usually, banks will want to split this up into two loans, called an 80/20.

This is my least favorite method but still gets you in the house with no money out of pocket. It’s also the most common way of getting into a house with no money down as it’s the least creative, makes the most money for lenders, and easiest to implement way to go.

The problem I have with this method is banks usually charge an arm and a leg for that second mortgage and they sure aren’t very flexible when times are rough.

At least if it’s a seller financing your 20% you could negotiate a better interest rate, work with them when you’re short on money, and in a few years offer him a cash payoff of around 75% face value.

So there you go. Seven methods to consider when thinking about making your down payment.

Next up we’ll talk about buyer closing costs: How much are they and what you can do to cover them?

As a final note, these are only 7 methods you can use. Every situation is different and for every situation there is a solution. Are there any methods for covering down payments you know that could add to these?

Be sure to keep up on this topic by Subscribing to our blog. It’s free, there’s no spam, and I don’t bite

Related posts:

1. How To Buy A House Like A Real Estate Investor: Part 7 – Knowing The Right Method To Buy Under
2. How To Buy A House Like A Real Estate Investor: Part 4 – Getting Your Closing Costs Covered
3. How To Buy A House Like A Real Estate Investor: Part 3 – More On Dealing With Down Payments
4. How To Buy A House Like A Real Estate Investor: Part 8 – Good Terms vs. Low Price
5. How To Buy A House Like A Real Estate Investor: Part 5 – Finding a Realtor