No Down Payment? No Problem - Tip For Buying A Home Without Cash

OK, so I get a lot of folks asking how they can buy a home of their own when they lack sufficient cash for a down payment. "The Simple Man's Guide to Real Estate" covers several methods in detail, and I will toss one of them out here. Condensed, of course, because this is a blog post, not a book.

Look for a suitable home that is currently a rental property, or is vacant. In such cases you can assume the owner already has another home, so there is a good chance he does not need a pile of cash that might cause problems with his tax rate.

Offer the owner a Contract for Deed (provided he does not have a mortgage with a due-on-sale clause).  Agree to make monthly payments equal to what your mortgage payment (less taxes & insurance) would be when you refinance to pay off the seller. Of course, you would also pay the taxes and insurance during the term. The term would be long renough to provide a 20% down payment, to avoid having to pay PMI (private mortgage insurance).

Your monthly payment is applied to the purchase price. Once you have built up payments equal to 20%, you would then seek a mortgage from a bank to pay off the seller. You would already have paid 20% down payment.

Example: home is worth $150,000.  Since you will owe $120,000 after making a down payment of $30,000, you would atgree to pay the seller at least $644.19 per month, plus all property taxes and insurance. That is the mortgage payment on $120,000 at 5% interest. I say "at least" because the more you pay now, the sooner you will have your down payment.

At $644 per month, it would take 46.6 months to make your down payment - just under 4 years. At that time you would get a mortgage from a bank and your monthly payment would remain the same. If you pay $1000/month, your down payment would be made in 2.5 years and when you get a mortgage, your payment would drop to $644.19 per month.

Pretty simple, really. And to think it is only one method of many...Don't forget to pass this on to everyone you know.

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