Can You Really Buy Foreclosure Home with No Money Down?
Can You Really Buy Foreclosure Home with No Money Down?
If you've ever had insomnia and watched late night television you may have seen the infomercials telling you that you can buy
real estate no money down. But can you really purchase investment property without having any cash? The answer is, "yes!".
Anyone can purchase property without having any cash, but it's not nearly as easy as the gurus proclaim. Can you do it even
if you have bad credit?? Yes, but it's a whole lot easier to do it if you have good credit.
In fact, with good credit it's easy to get cash when you buy. Here's how you can get paid when you buy a piece of property.
Example: Property is for sale for $100,000.
1. You ask the owner of the property to give you a note for $30,000 secured by other property you own or even as an unsecured
note (you can put a VA clause in the note allowing it to be moved back to the subject after the closing).
2. You get a conventional loan for 75% of the sales price.
3. You ask the seller to pay your closing costs.
4. You ask the seller for a carpeting allowance of $2000.
Here's how the deal works;
- You buy the property for $100,000.
- You pay the bank on a $75,000 mortgage.
- You pay the owner on a $30,000 mortgage.
- The seller pays your closing costs.
- The seller pays you $2000 for carpeting.
If the property is rented out for $1000, you collect the rents and security deposits.
In the above example the buyer would walk away from the closing with a $100,000 property, $5000 from the over finance, $2000
for the carpeting, and $2000 for the rent and security deposit. That's a total of $9000 for buying a piece of investment
property. NOT TOO BAD.
Will every seller be willing to do this deal with you? No, maybe only one seller in ten or twenty will be willing to do this
deal. But there are sellers who will do this deal. What you have to find is a motivated seller.
What makes a motivated seller?
- An owner who is in foreclosure.
- An owner who got the property as part of an estate.
- An owner who no longer wants to deal with tenants.
- An owner who is in divorce.
- An owner who has been transferred out of state.
Now that you've bought a property and put money in your pocket be prepared to deal with the tenants.
Yet there is another technique that virtually anyone can use as long as the property seller is willing to negotiate with
you. To be fair, not every seller will be interested (or even understand) the concept outlined. Your best bet is to find a
property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.
In fact, if you are currently renting and thinking about using this technique perhaps your landlord would be happy to help
you out!
There are a few variations that can be used depending on you and your seller. Do they want the market price or are they just
eager to get out from the monthly payments - perhaps facing foreclosure?
The simplest method is to take over their mortgage payments - called 'assuming' the mortgage. You will need to be approved by
the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also try a 'subject
to' assumption where you merely make payments while the property remains in the seller's name.
WHAT IF THEY WANT A HIGHER PRICE?
You take over the original mortgage AND create a second mortgage on the remaining cost of the house with the seller. Offer a
high, interest-only payment for a short period of time - 2 or 3 years. Instead of having the money sit in a bank they can be
collecting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term ends you should be able to refinance the cost, or you can sell. Unless you hit a real bad market the value of
the property should have risen in that time.
WHAT IF THERE'S NO MORTGAGE TO ASSUME?
Easy. Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty
of financial lenders that would love to make a deal.
Financiers like real estate. The mortgage is usually based on 60-70% of the VALUE of the property, so as long as they know
they get their money back in the value of the property if you default, they don't care what kind of money you make. Complete
the deal with a second mortgage created with the seller. If you default they can still foreclose on the property and sell it,
paying off the existing mortgage with the proceeds.
As you can see, it can be in the favor of a buyer and seller to work together - especially if the seller is motivated. If
they can't wait for a sale, you can still give them their asking price with a little flexibility on their part.
Visit House Foreclosure and Investing Blog to read Forclosure Experts discuss Foreclosure Investing and Strategies on a daily basis.
If you've ever had insomnia and watched late night television you may have seen the infomercials telling you that you can buy
real estate no money down. But can you really purchase investment property without having any cash? The answer is, "yes!".
Anyone can purchase property without having any cash, but it's not nearly as easy as the gurus proclaim. Can you do it even
if you have bad credit?? Yes, but it's a whole lot easier to do it if you have good credit.
In fact, with good credit it's easy to get cash when you buy. Here's how you can get paid when you buy a piece of property.
Example: Property is for sale for $100,000.
1. You ask the owner of the property to give you a note for $30,000 secured by other property you own or even as an unsecured
note (you can put a VA clause in the note allowing it to be moved back to the subject after the closing).
2. You get a conventional loan for 75% of the sales price.
3. You ask the seller to pay your closing costs.
4. You ask the seller for a carpeting allowance of $2000.
Here's how the deal works;
- You buy the property for $100,000.
- You pay the bank on a $75,000 mortgage.
- You pay the owner on a $30,000 mortgage.
- The seller pays your closing costs.
- The seller pays you $2000 for carpeting.
If the property is rented out for $1000, you collect the rents and security deposits.
In the above example the buyer would walk away from the closing with a $100,000 property, $5000 from the over finance, $2000
for the carpeting, and $2000 for the rent and security deposit. That's a total of $9000 for buying a piece of investment
property. NOT TOO BAD.
Will every seller be willing to do this deal with you? No, maybe only one seller in ten or twenty will be willing to do this
deal. But there are sellers who will do this deal. What you have to find is a motivated seller.
What makes a motivated seller?
- An owner who is in foreclosure.
- An owner who got the property as part of an estate.
- An owner who no longer wants to deal with tenants.
- An owner who is in divorce.
- An owner who has been transferred out of state.
Now that you've bought a property and put money in your pocket be prepared to deal with the tenants.
Yet there is another technique that virtually anyone can use as long as the property seller is willing to negotiate with
you. To be fair, not every seller will be interested (or even understand) the concept outlined. Your best bet is to find a
property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.
In fact, if you are currently renting and thinking about using this technique perhaps your landlord would be happy to help
you out!
There are a few variations that can be used depending on you and your seller. Do they want the market price or are they just
eager to get out from the monthly payments - perhaps facing foreclosure?
The simplest method is to take over their mortgage payments - called 'assuming' the mortgage. You will need to be approved by
the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also try a 'subject
to' assumption where you merely make payments while the property remains in the seller's name.
WHAT IF THEY WANT A HIGHER PRICE?
You take over the original mortgage AND create a second mortgage on the remaining cost of the house with the seller. Offer a
high, interest-only payment for a short period of time - 2 or 3 years. Instead of having the money sit in a bank they can be
collecting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term ends you should be able to refinance the cost, or you can sell. Unless you hit a real bad market the value of
the property should have risen in that time.
WHAT IF THERE'S NO MORTGAGE TO ASSUME?
Easy. Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty
of financial lenders that would love to make a deal.
Financiers like real estate. The mortgage is usually based on 60-70% of the VALUE of the property, so as long as they know
they get their money back in the value of the property if you default, they don't care what kind of money you make. Complete
the deal with a second mortgage created with the seller. If you default they can still foreclose on the property and sell it,
paying off the existing mortgage with the proceeds.
As you can see, it can be in the favor of a buyer and seller to work together - especially if the seller is motivated. If
they can't wait for a sale, you can still give them their asking price with a little flexibility on their part.
Visit House Foreclosure and Investing Blog to read Forclosure Experts discuss Foreclosure Investing and Strategies on a daily basis.
posted by Mr. Foreclosure at 2:32 AM
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