If you were to call a lender today and say, "I just found this great home for $100,000 dollars and I want you to lend me $90,000 and I'm going to borrow the other $10,000 from my credit union.", that lender would say, "no".  The general rule is that a lender will not allow you to borrow the down payment for the purchase of a property  and if they find that you do, no matter how well off you are financially or credit-wise, your loan will be turned down.  Their reasoning is that: "If you are not good enough at handling money to save the down payment, then you're not a good enough credit risk for us to lend you $90,000." 

The exception to this rule is that if you are borrowing the money against an asset that you already own, then the lender will allow it.  This exception opens up many possibilities for the person with assets but little cash.  Are you a car buff with a valuable classic?  Do you have a house full of beautiful furniture? Or a great stereo system?  Whatever the case, you can go down to your local finance company and take out a loan using that asset as collateral and use the money as a down payment on that property you're after; and contrary to popular belief, you probably don't need to raise as much as you think. If you, were buying the above mentioned property with an FHA loan, the lender would require a total investment on your part of only about 6% to 7% of the sales price (in many cases, even less),or around $6,000 dollars, and that includes down payment and closing costs. So, on a property that costs $50,000, you would only need to raise about $3,000.

Here is an actual example of this method in use...

I had a couple walk into my office who wanted to buy a big luxury home with about an acre of land and they felt they could afford payments of about $900 dollars per month.  They had two problems no cash and a combined income of only about $1,700 per month.  Although, they felt they could afford $900 per month, with $1,700 per month income, there was no way a lender could be convinced, especially with no down payment.  So, at first glance their case was hopeless.  However, they had one asset... Four years prior, they had bought a home.

I decided there was probably a way to work it out; so we went house hunting.  In no time we had found the perfect home for them; 4 bedrooms three baths and about three quarters of an acre.  The price was $113,000 dollars.  But there was still a problem.  Not enough income to qualify and no down payment.  Here's what we did...

Some lenders, usually savings and loans, have what is called a no qualifier loan.  What this means is that if you have good credit and put, at least, 25% down, they will not require the usual, time consuming verifying of income.  They will take at face value whatever you tell them you earn.  I knew that if we could raise the 25% down, about $30,000, we could get my clients qualified by simply stating a higher income for them.  But where to get $30,000?

As I said earlier, they had bought a home.  They now owed $40,000 against it but it was worth about $80,000. Some banks will lend up to 90% loan to value on owner occupied properties.  In other words, if you live in the property they will lend up to 90% of its value minus any existing encumbrances (loans).  So, if the property is valued at $80,000 with $40,000 owed against it they will lend $72,000 minus the $40,000 encumbrance or $32,000.  I had my clients do exactly that.

They got a second mortgage of $30,000 dollars and used it all as a down payment on the home they were buying.  Since they were now, putting over 25% down on this new home, we were able to use the "no qualifier" loan.  The end result was that they got the home they wanted, and because of the large down payment, they got monthly payments that were actually a little lower than they were expecting.  The lender was happy because they made a loan, and my clients were able to budget their money so as to be able to make their payments.  And to top it all off, their other house is now a rental that brings in $100 dollars per month more than they owe on the loan payments.  Pretty good for someone with no cash and little income...

  Next Chapter


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