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.
