1.) YOU DON'T HAVE THE DOWN PAYMENT IN CASH.
Just because you are "cash challenged" is no reason not to buy a house or condo. Even if you have lots of cash, why tie it up in your residence? There are many ways to buy a home for zero cash.
2.) YOU ARE A VERY SMART HOME BUYER WHO UNDERSTANDS LEVERAGE BENEFITS.
The second major reason for buying a home with little or no cash is to maximize your leverage benefits.
To illustrate, suppose you buy a $300,000 house for $300,000 cash and that house appreciates in market value at the historic nationwide average rate of 5 percent annually. In 12 months, it will be worth $315,000, or a 5 percent yield on your investment.
Instead, suppose you obtained a $300,000 zero-down-payment mortgage and the house rose 5 percent in market value in the next 12 months. Yes, you had to pay monthly mortgage payments, roughly the equivalent of rent. But now you "earned" $15,000 on zero investment for an infinite yield.
CREATIVE WAYS TO BUY FOR ZERO CASH DOWN PAYMENT.
Presuming you want to buy your next house or condo for little or no cash, there are many ways to do so. The most obvious is to obtain a 100 percent or greater new mortgage. (apply for a no down loan)
Instead, suppose you don't need 100 percent financing, but you don't want to tie up a bundle of down-payment cash. The first step is to get pre-approved for the maximum mortgage you can obtain.This approval is in writing, not a worthless "pre-qualification letter".
The second step is to use that written pre-approval to buy the home you want. If you keep the mortgage balance below 80 percent of the home purchase price, you have many alternatives:
One is the 80-10-10 plan where you obtain an 80 percent first mortgage, a 10 percent second mortgage, and pay a 10 percent cash down payment.
Another is 80-15-5 where you pay only 5 percent cash down payment and either the seller carries back a 15 percent second mortgage or the lender arranges a 15 percent second mortgage home equity loan. Either way, you receive maximum leverage benefits, buy your home for practically nothing down, and avoid costly PMI premiums.
FINANCE FIRST, THEN BUY YOUR HOME FOR LITTLE OR NO CASH.
After pre-arranging your home mortgage, and getting a written pre-approval letter or certificate from us, it's time to start shopping for a house or condo; however, in the back of your mind, be sure to consider how much home you can afford.
Armed with the confidence of a written pre-approval letter from a mortgage lender, you can decide what zero- or low-down-payment choice you prefer. When you see the home you want to buy, this is no time for the "paralysis of analysis."
With our help, make your purchase offer before another buyer steals your home. However, you can be sure your purchase offer contains two key contingency clauses for 1) a satisfactory appraisal of the home, as required by your mortgage approval letter, and 2) a professional home inspection.
Unless you got carried away and offered too much for the house or condo, the appraisal contingency should not be a problem. However, the home inspection is vital. Be sure to accompany your inspector to be certain there are no latent or surprise home defects discovered.
If your inspector discovers a serious undisclosed home defect, then you can either negotiate for a "repair credit" toward your purchase price or cancel the sale and obtain a refund of your earnest money deposit if the seller refuses to be reasonable
