Buying with Nothing Down

Buying with Nothing Down
by James Miller

While It’s easy to love the idea of a nothing down deal, I do want to start off by saying that Just because you can get a property for nothing down, doesn’t automatically make it a good deal.  The no money down deal structures I am going to be talking about assume that the deal makes sense otherwise.

There are a few basic ways to structure a deal to get in with little or no money out of pocket.

Have the seller carry back a second mortgage

This can be used with a conventional purchase where the bank will accept a second mortgage from the seller in lieu of some or all of the required down payment. The seller agrees to take back a note and mortgage from you for some portion of the purchase price.  The terms of the sellers carry back note are all negotiable.

Some banks won’t accept a second mortgage or will still want some percentage down, as they like to see a buyer with something at risk. The more equity you can find in a deal, the more receptive the lender will be to taking on a second mortgage. If the lender in loaning on a low LTV, the more likely it is to be accepted.  For example if you can get eth seller to take back 50% of the purchase price, the lenders position would be relatively safe if they were to loan the remaining 50%.

The fear lenders have with seller carry back seconds is that you may be intentionally, or unintentionally overpaying for the property. That the real value of the property may truly be at or below the amount they loan. The more secure you can make a loan for them, the more receptive they will be to financing the property.

I have used this technique to actually get cash back at closing, essentially financing the property for more than the purchase price.  The seller agreed to take back a 20% second for one year with no interest and low monthly payments.  After one year of ownership and making the property cash flow, I was able to refinance the property and pull out enough to pay off the original second. I 100% financed the property right from the start using the sellers help.

This can often work well with sellers that own a property free and clear. The less equity a seller has the less able they are to be able to take back a note.

Eliminate the bank and have the seller finance the purchase

This can happen using a land contract, a first mortgage, creating a wrap around mortgage, taking by over the existing financing “subject to”, or under a lease option.


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