So basically he needs to come up with 5% of $80,000 – or $4,000 – somehow. Will the bank allow a second behind their 95% LTV first? If so, see if the seller will take a second for $4,000, meaning he is not out of pocket except for closing costs. Or, like your brother mentioned, offer $80,000 with a credit (could be for closing costs or repairs – doesn’t really need a reason as long as the seller agrees to it and the amount is within what the lender will allow), but beware, many conventional lenders limit the seller contribution to 3% of the selling price.
Maybe you should tell him to forget it and then find a better deal for him!
Posted by Matt B on February 21, 2001 at 09:17:48:
My brother asked me for some input on a deal that he’s looking at. However, it falls out of the range of my expertise, so I’d like to get some input on it.
He is looking at a duplex that is listed for $79,900. According to him, the real estate agent said that the owners are out of state and are “anxious to sell”. (Gee, I’ve never heard that from a real estate agent before.) Comps on the place are right at $80,000. My brother wants to try to construct some sort of offer with no money down. (I think this is pointless because I see no motivation from someone who is listing the property at full price, but he wants to try. Why does nobody listen to me?) My brother has already been approved by his bank for a $100,000 mortgage.
He has been told by a mortgage broker that he can offer full price and have the seller give him back $5,000 for repairs even though it needs no repairs. He is trying to come up with some idea to get the down payment back at closing or not have to come up with a down payment. Since this seems like a crappy deal, I can’t even think of any creative way to deal with it. Any ideas?
The place has one of the units rented at $600 a month. My brother plans to move into the other unit. Anyone have any suggestions for a no down deal here?
look into local grants or loans… - Posted by Anne-ND
Posted by Anne-ND on February 22, 2001 at 09:46:00:
…at the county, city or state level. Many places have these set up to help first time home-buyers get into properties. I qualified for one when I made my first purchase, which was a duplex. It was for 3%, no payments for 10 years, offered by the state of ND to get more people to buy homes. I learned about it by taking a local homebuyers class offered for free by a community center. Taking the class also meant I got $100 off my closing costs. Look around, there are lots of programs for first time homebuyers out there.
…that you can do this, especially if he is going to live in it is get a combined loan to value of 100% with the seller to pay closing costs. This could be accomplished with a 80% first and a 20% second. If it’s owner occupied this should be fairly easy to do.
Just adjust the price upward to include the closing costs. You should be able to find a loan that will allow 5% to be paid by seller as closing costs.
FHA is another way to go using the Nehemiah Program. Out of sales price, seller will pay 4% to Nehemiah who will then gift 3% to buyer. FHA will allow 6% to be paid in closing costs, thus a no money down FHA deal. Of course the buyer pays an extra point to Nehemiah for this priviledge.
Big problem I see to craft a deal with no money out of pocket is that there is a realtor in the way. Without knowing the seller’s motivation, it’s kinda hard to know in what type of offer to make.
What I would try to do is to find out if a monthly stream of income would work better for the seller. Then make an offer of the seller holding the mortgage of $79,900 or whatever the sale price would be and then split this mortgage into a larger 1st and a smaller 2nd. The seller can than either keep both mortgages or sell the 1st for their cash and keep the 2nd and enjoy the cashflow from that.
If you make an offer like this, I would definitely put a clause in that allows you to accompany the realtor when the offer is presented to the sellers. This way your brother can explain the offer to the seller and answer any questions that they might have. Have the 1st and 2nd equal the purchase price and presto, no money out of your brothers pocket.
Posted by Anne-ND on February 22, 2001 at 11:31:26:
I got a 203K/FHA loan for 97% of the purchase price at 5.75%, 360 payments. The remaining 3% of the purchase price could have come from a low-interest, no payments for 10 years loan from the state. So, I was able to get 100% financing on my first property (duplex) using gov’t loans. For other reasons I didn’t actually use the 3% (of purchase price) govt loan, but I did qualify for it. This is not unique to ND- these loans are out there, in many communities. In some cases they are grants if you qualify by income (i.e., you don’t pay them back). The only reasons I knew to ask was because I’d read a book called “100 common mistakes you should NOT make when buying a home” (or words to that effect). The last mistake was to fail to buy a home, and they listed 50 sources of funding as examples of where to look.
The take home message is: first time homebuyers are in a great position to buy with no money down, ask around.