How to buy a home with no job, no credit, and no money?
As a real estate financier, you
are much like an artist and the property's existing financing is your canvas.
If you were asked to complete a painting that were 90% finished, you would be
very limited as to what you could do. There
would be a certain color scheme you would have to follow and if the rest of the
painting were of a desert landscape, you could hardly start painting fish!
If the painting were only 10% complete you would probably be able to take
it in any direction you wanted and still end up with a viable work of art.
Financing is much the same. The higher the percentage of
property value that is taken up by existing loans, the fewer options you will
If you are buying the property for $100,000 and it has a $90,000
dollar loan balance and the seller absolutely must have $5,000 dollars out of
the transaction, there are not many ways to accomplish it without taking
something out of your pocket. However,
if that same property had only $50,000 owed against it, getting $5,000 or more
for the seller would be a simple matter of assuming the existing loan and creating
a saleable note (see Chapter
carries 2 notes.).
Using the art analogy: that option was available because the canvas was
only 50% full.
A property that is "free and clear" (no loans
against it), is like having a blank canvas.
You can do almost anything you want; the options are virtually
One of the most valuable principles of real estate
financing you can learn is this: Many
lenders will consider
only the property in evaluating the decision to lend.
In other words, if they feel that the property
is a secure investment on their part, they won't worry about your income, how
much is in your savings account, your credit history, or whether or not you are
putting any money down on the property.
Where do you find these lenders?
As a general rule, banks and savings and loans will not get involved with
"no money down" situations, with the possible exception of larger
commercial ventures. However, you can look in your local newspaper and probably
find a "trust
deed" investor who would lend or you could look in your local phone book
companies and ask what their lending criteria is.
Ninety percent of the time their main consideration will be the property.
Why are these lenders so "generous?"
Well, lets examine the situation. Let's
say you bought a property that was appraised for $100,000 and they lent you
$70,000 dollars to purchase it. If
you did not make even one payment and the lender had to foreclose, what happens?
They end up foreclosing and taking ownership of a $100,000 piece of
property with only a $70,000 dollar investment. They just made $30,000.
It is easy to understand why the lender's only concern is, "Is
there ample protective equity?".
As long as the lender's investment is covered
by enough equity, they don't really care about your personal financial situation
or how much cash, if any, you put into the transaction.
Now, how to use this knowledge to your advantage...
You have just found a property with no existing loans
against it. The seller wants
$100,000 sales price and needs $60,000 dollars cash.
By applying the principles we have just learned, this transaction becomes
the essence of simplicity...
You trot on down to lender and borrow $60,000 that will be secured by the
property you are purchasing.
Then execute a second mortgage in favor of the seller for $40,000 dollars.
The seller has now sold his property for $100,000, he got his $60,000 in pocket, and you bought another property with "nothing down". Next Chapter