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 have available. 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 8 Assumption and seller 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 limitless...

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 under finance companies and ask what their lending criteria is.  Ninety percent of the time their main consideration will be the property.

If the finance company can see that there is no way that they can lose on the deal, they will lend. PERIOD! Consequently, their criteria is usually this: They will lend no more than 60% to 70% of what the property is worth in its present condition.  This means what the property is WORTH not the sales price.  If the property were worth $100,000 but you were buying it for $70,000, they would lend 70% of $100,000=$70,000 not 70% of $70,000.  If you bought it for $60,000, they would still be willing to lend you $70,000; you then pay the seller his $60,000 and put $10,000 into your pocket!  Read this last statement again.  It is GOLD.

 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...

     1) You trot on down to lender and borrow $60,000 that will be secured by the property you are purchasing.

     2) 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

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