How to buy a house with no money down?
I googled this question, and got a slop of stale Ads, and numerical lists with inane titles like, 5 Ways to Buy, 6 Things to Know, 3 Reasons to Be. It was a dreary and useless rehash of what’s obvious. Finance requires Sacrifice! Borrow the Down Payment! Be Conservative! I guess that means sacrifice until you have a 20% down payment on a house, but if you could, you would. Right? So…
How do you buy a house with no money down?
You can’t. Not with zero down. Let’s be honest. But it is possible to buy a home with out having stacks of cash, generous parents, or a lottery win? And you can get a loan with a lot less than 20% down.
A few months ago I met a client named Heather, who was doing an FHA loan to buy her first house. This meant she was putting as little as 3% down and the loan was insured by the Federal Housing Association. Not unusual.
But Heather wanted a fixer, and this is usually incongruous with FHA home loans. Usually, homes bought with an FHA loan have to be in good shape in order to be insured. But Heather wanted to get a fixer, and make her own home, and she needed to do an FHA.
So she got what is called a 203K construction loan, which is money borrowed to fix a fixer, in conjunction with an FHA loan. They’re tricky and can be difficult to close – this is true. And Heather’s transaction was beyond tricky, it was insanity on a stick. This is a feel good story about a tenacious buyer, a savvy lender, and a focused agent.
When you do an FHA 203K loan, it’s best to find a lender that does a lot of them, and we did. Her name is Kristy Sparks from Banc Home Loans, and when things got tricky with 17,000 moving parts that erupted in this escrow, she was like a super hero to me.
The odds were stacked against us from the start. 203K loans are notoriously detailed and can be a bit laborious, but everything is solvable. However, in this situation there were several issues. The house had a septic system that needed to be certified, there was mold, and roof rot, drainage issues, and necessary upgrades, on and on. And if that weren’t enough, the sellers were “eccentric,” which is polite for really difficult, and even at times just gone, radio silent, like MIA. At one point I joked that if we could close this deal, we would all be super heroes.
We closed it.
It was a long escrow, but anything after this will be fine. I swear to God, inside every transaction is this pool of people who come together to make It happen. Everyone inside the escrow wants the buyer to close. There’s a lot of communication between lenders, agents, clients, inspectors, escrow officers, assistants, transaction coordinators, and this is the case for a normal transaction. With a 203K you add to that a contractor, one who is licensed and certified to do a 203K job. Once you get an accepted offer, the contractor does a detailed bid, and organzies it into three phases. The bank steps in, and pays in three parts, as each phase is completed, and it does require some paperwork and communication between the contractor and lender to flesh it all out. Once the work is clarified and the job is parsed into three phases, the bid is approved. The contractor will be paid by the bank in three draws, each payment is given upon completion of each phase. For the appraisal, the house is appraised at the fixed-up value.
The task of buying your house in this scenario will take effort. It will take a good credit score, and most of all the desire to own a home.
Kristy Sparks of Banc Home Loans knew the ins and outs, the rules, the loopholes, the possiblities, the perks, the math, and how to align all the details, which is good because of course this loan has extra details, but this particular transaction was fraught with issues, which made her such an important player. I’ve come to understand that these are true options for first time home buyers.
Heather wanted to stop paying rent, and she wanted to make a house into her own home. I’m happy to say Heather moved in to her investment, and has begun to build her own equity, instead of someone else’s.
You do not have to keep paying your landlord’s mortgage instead of your own. You are not sentenced to the rent zone, and you do not have to reset your investment back to zero every thirty days when you write that rent check, and the return is nothing. Again. You can buy a house with 3% down, and have that farm sink and nice floors like you dreamed about.
I’m not going to give you a ‘5 Things You Should Do’ list, or dole out advice that’s just plain obvious, but I am going to say – once you’re realistic about a location, and clear on your number, and willing to invest the time to find what’s out there in your range, and commit to keeping a few moving parts on beam, it’s possible. I want to encourage you to do something like this, or for that matter do anything – in general – you’ve told yourself isn’t possible. You could start here.
Heather, you did it!!!!