How People Buy Real Estate with “No Money Down”
I call it pre-coffee ergophobia. It's that 30 minute window between the time the coffee begins brewing until the time when the coffee has fully stimulated all of the neurons in your brain. During that time, you're awake but still fearful of doing any type of work which might require brainpower.
It's also the time that I find myself completely unable to fight off the calling of early morning infomercials.
Now mind you, I've never actually bought anything off of the TV, but I seriously think I've seen all of them. The Showtime Rotisserie. OxiClean. The NuWave Oven. And of course, my favorite, the ridiculous "No Money Down" real estate products. If you haven't seen it or already wasted $360 buying it, allow me to spill the beans.
Here are a few of the ways they suggest getting a "no money down" mortgage...
"Buy to Let" Mortgage
These types of mortgages were very popular before the financial crisis, but they are a bit harder to get now. These loans are for rental properties and in order to qualify for the loan you have to use your future rental income as your collateral. It's a bit easier to qualify if you can present a business plan and applications from prospective applicants.
However if you're using a buy to let mortgage calculator, you'll probably notice that your are going to be required to buy PMI insurance with this type of loan. That's because loans issued with less than 20% down are usually required to buy this costly insurance which may reduce or eliminate your profit potential.
If you're a veteran, active duty personnel, national guard/reserve or a surviving spouse, you're probably eligible for a no-money down VA loan. Another huge advantage of VA loans are the exceptionally low rates (The mortgage calculator show the rate at 4.08% this month).
However, in order to qualify for a VA loan, you have to guarantee that you will personally live in the domicile within 60 days of the close. That all but eliminates your ability to rent out the property, unless you buy a home and rent out one of the rooms inside.
A little obvious, but if you have another high-value item in your name, the bank may accept it as collateral.
A lot of the programs suggest leveraging your personal home or another rental property in order to qualify for a "no money" down loan. But, who hear has enough equity left in their home to leverage it? Anybody? Cricket...Cricket...
The Department of Agriculture's has a program for guaranteeing loans for "rural development." However, the definition of "rural" is very loosely defined term. Take a look at the USDA's website to see a map of eligible areas. Unless your looking to build downtown, you'll probably qualify, although there are restrictions on household income and usually need to be a first-time homebuyer.
Another advantage of a USDA mortgage comes from a bank, is that you aren't required to buy mortgage insurance. Instead, the USDA levies a 2 percent guarantee fee, which can be rolled into the loan amount.