There are myriad ways to buy a home with nothing down. In fact, after reading the first three sections of this article, I’m sure that you have already conjured up at least a half dozen strategies on your own. I will offer a few here that I have used in the past to greater or lesser degrees of success, and will offer some new ones that I must admit, have not tried yet. Perhaps you can try them and give me feedback on your success!
Contract for Deed, or Land Contract – most if not all real estate loans have a ‘due on sale’ clause that gets triggered when the property is sold. To get around that exceptionally nasty piece of work you and the Seller can enter into a Contract for Deed. There are sources on line that describe this process in greater detail and/or make contract forms available. The bottom line is that he Seller retains title to the property while the Buyer is making payments. Depending on the arrangement, the Buyer may not have to have any money invested up front. My typical contract for deed deals have me as Buyer, making payments for the first 4 years, with 50% of the payments going to the down payment. At the end of the 4 years, I secure a loan and buy the property, with credit for the down payment.
Tenants in Common – another method I have employed is where the Seller retains an equity position in the property, and we own the property as Tenants in Common. The Seller takes back that equity position in lieu of a down payment. At a predetermined time in the future, the property is sold and the Seller is given a share of the net proceeds equal to the retained equity. During the life of the contract, however, the arrangement is that I pay 100% of the property taxes and the Seller gets a tax write-off for a percentage equal to the equity position. Similarly for repairs: I pay 100% of the repair cost and the Seller gets a deduction for the equity share position. A variation is that for repairs over $200 (an arbitrarily selected number), say, for major roof repairs, water heater repairs, etc, we share the cost according to the percentage of ownership. Naturally, this should all be in the contract.
Lease Option – similar to Contract for Deed, but at the end of the Lease period, I’m free to either buy the property or walk away. Sellers typically want some money up front for this one.
Personally, I always ask for a Notification of Default to be filed with the Lender if the property has an existing loan and the Seller is acting as a “passthrough” agent, and a ‘due on sale’ clause does not exist in the loan docs. I don’t want to pay money to someone who then doesn’t pay the note at the bank, and I get a rude awakening some day in the future.
Seller Carries Back a Second – this only works if the total payments of first and second are affordable.
Bank Owned – Here’s a new one: buy a REO (Real Estate Owned – lender foreclosed on the property and now owns it). Have the bank sell you the property at a fair price and interest rate, add? point to the interest rate and to the price and ask the bank to finance the entire purchase. Offer to pay the recording fees. It may be in the bank’s best interest to get this ‘toxic asset’ of their books, turning a bad debt into a performing asset. I think that this would work best with small banks that have less than 50 branches.
Disclaimer: As a licensed real estate broker, I am qualified to offer advice about real estate matters only. Period. I can not offer legal advice or tax advice. Please see your lawer for legal advice and your tax specialist for tax implications from these techniques. None of the descriptions in the following techniques are either tax counseling or legal advice, nor are legal or tax consequences considered or discussed.