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7 Creative ways to buy a home with little/no money down
No money for a down payment? No problem!
Let’s face it: houses aren’t cheap. Your home is likely to be the biggest purchase you ever make in your entire life. There aren’t many people who can just write a check for the full amount and walk away with keys to a new house. For most of us, the process of securing a loan is a long and difficult process that includes monitoring our credit score and trying to scrape together enough money for a down payment.
But what if you can’t come up with the down payment?
Unfortunately, this is a reality for a lot of people. Many of us don’t have substantial savings or investments we can draw from, so pulling together a down payment can be tricky, if not impossible. So, does this mean we have to give up our dream of owning a home?
Well, take a deep breath and relax, because there are a few different options you can explore that will help you secure that loan and buy that home without putting much (or any!) money down. Read on to see which one is right for you!
You’ve heard of Kickstarter (that’s the website your co-worker used to back that new board game or the Veronica Mars movie) and Indegogo and DonorsChoose (that’s the one your neighbor, the teacher, used to ask the community to help her buy Greek Mythology books for her classroom). What do all these sites have in common?
They’re all crowdfunding sites. That means that people can make micro-donations to a cause they believe in. On a site like GoFundMe, for example, you could start a campaign to get people to contribute to a fund to help start a scholarship, pay for unexpected medical bills or to save an endangered species.
You might be asking, “why hasn’t anyone thought to do this for houses?”
And the answer is — they have!
With the popularity of crowdfunding platforms for new products, charities, and social causes, it was only a matter of time before people developed tools to help you make the biggest purchase of your life: your house.
In the past couple of years, a number of sites have cropped up to help you get the funds you need to make your down payment. Here are a couple of them:
- HomeFundIt is similar to traditional crowdfunding platforms. You’ll set up a page and tell your story, then share it with your friends and followers. Anyone with a credit or debit card can contribute, and there are even chances to get matching contributions from site partners.
- Feather the Nest operates in much the same way: you set up a “Nest” with a testimonial, videos and other information explaining your situation. Then, you get contributions from others to help build your Nest. One additional feature is that your Nest can help you with post-purchase projects, too, such as putting an addition on your home.
- Patch of Land focuses on peer-to-peer lending, offering a marketplace where individuals can crowdfund other people’s real estate ventures as potential investments. It can help match you with the right investors to fund your home purchase and, down the line, you could even use the site to return the favor for someone else!
Consumers looking to buy sedans or refrigerators have long had the option to rent-to-own (or lease-to-own). It’s become a common enough practice for appliances and cars, which can cost in the range of hundreds of dollars to tens of thousands. But what about houses, which can cost hundreds of thousands of dollars?
Well, nowadays, you can enter into a rent-to-own agreement for a home. It’s not that different from getting your new fridge this way, but it’s not exactly the same, either. Here are some questions you might have about the process to help you buy a home with no money down:
- How does it work? After you sign a rent-to-own agreement, you move into your new place right away. During your first few years there, you pay rent to your landlord. A portion of that rent goes toward the purchase of the home. Then, after a predetermined amount of time, you get yourself a loan and go through the homebuying process. The money you’ve been putting toward the house in that time is part of your down payment.
- Is it right for me? If you think you’re ready to buy a home in all regards except you don’t quite have the money or the credit to get the right loan, this could be for you. You can move in right away and, while you’re paying the slightly-higher-than-market-rate rent (remember, your rent will be a bit higher since some of it will go to your future mortgage), you can build your credit score to get the right loan for the eventual purchase of the property.
Roost Tip! Try searching for rent-to-own properties in your area to see if there are any listings that appeal to you!
3. Get a specialty government loan
Getting a loan can be a challenge — especially if you have little or no money for a down payment. Fortunately, there are a number of specialty loans out there that you might be able to access. These loans have different criteria that you’ll need to meet in order to qualify, but if you do, you may find that they’re easier to access. So, what are some of these loans?
- FHA Loan: While a Federal Housing Assistance Loan does require a down payment, but it’s typically a lot smaller than a bank would require. Your bank might require 10-20%, while and FHA loan might require 3.5%. That can make a huge difference and might be more manageable for you.
- VA Loan: These loans are available to active-duty service members and their families. They’re backed by the Department of Veteran’s Affairs and typically require little or even no down payment.
- USDA Loan: Another loan program that exists for people who meet certain requirements comes from the US Department of Agriculture offers loans to people in rural and certain suburban areas. There are credit checks and other qualifications that you’ll need to consider, but these loans do not require a down payment.
4. Find an angel
Maybe you’ve got a wealthy uncle. Maybe you have a business partner that might see you as an investment. Maybe you went on a quest and rescued a helpful fairy who was disguised as a simple frog. Ok, probably not that last one, but you probably see where we’re going here. In the investing world, these people are often called “angel investors.” If the strategy can work for companies in Silicon Valley, then why can’t it work for you?
So, the question is, how do you access this kind of help? Well, first you can reach out to your own contacts: family, friends, friends-of-friends. You never know if there’s someone in your circle who can give you the loan you need. Can’t find someone who can help you? There are sites, such as Prosper or LendingClub, that facilitate personal loans for people just like you. It can’t hurt to check them out and see if an individual wants to give you a loan. Just be sure to check the terms and conditions before you sign on the dotted line!
5. Seller financing
Most of the time, we think of getting loans from massive organizations, like banks or the government. But a new trend these days is seller financing, also known as owner financing. This is when the seller handles the mortgage, rather than one of those big organizations. Signing your mortgage directly with the seller has some benefits. Not only may you be able to get this type of mortgage with low or no money down, you’ll also be able to avoid closing costs. It’s a faster and easier process, but be aware that you’ll probably end up paying a higher interest rate than you would with a bank loan.
6. Fractional ownership
Fractional ownership is a fairly new but intriguing trend. It’s when companies essentially buy a stake in your home as a futures play. They put down money, which you use as a down payment, in exchange for a share of your future gains — or losses. So, if they put down 10% of the price of your home, they’d earn 10% of the appreciation of it down the line, assuming it goes up in value. But, like any investment, they take on risk. If the value of your house goes down, they actually lose money on you. In these cases, you’d only own, say, 90% of your home, but many would say that 90% is better than none! Here are a few companies that have cropped up recently that are in this business to help you buy a home with no money down:
- Divvy: Divvy operates in a number of cities (and is expanding into more). They allow their customers to pick out their own homes and work toward owning them over time.
- ZeroDown: ZeroDown will buy the house you want with a cash offer and you can work toward owning it after at least two years of residency,
- Landed: If you’re a teacher, you should know about Landed. Their stated goal is to help essential workers (right now, just teachers, but in the future, healthcare workers and first responders) own homes. They’ll put up 10% of the value of your home against future earnings.
One solution that renters have consistently used to deal with high rent is to find roommates. And many homeowners who are part of a couple rely on two incomes to pay the mortgage. Well, now companies like Cher have combined these two ideas to make sharing a mortgage as easy as sharing a lunch bill.
Cher facilitates a co-ownership arrangement between you and your “partners” (friends, relatives, co-workers, or, really, anyone). You can then co-own a mortgage with your partner or partners, just as you might if you were, say, a married couple. This can increase your chances of getting a mortgage. Many see this as a stepping stone on the way toward getting your own mortgage someday. Or maybe you’ll find you just love your roomies!
No down payment? No problem.
Many people are scared to buy a house because it’s a complicated and daunting process. And, let’s face it, it’s pretty expensive. You may have been reluctant to pursue it before because you weren’t sure if you could afford the down payment. We get it. But we also know that buying a house is a dream for a lot of people, and when you have a dream, you owe it to yourself to pursue every avenue. After all, it is possible to buy a home with no money down.So, put aside your preconceptions and think outside the box. Whether you go the crowdfunding route or find yourself a solid individual investor, we hope you can come up with the best possible solution for your needs!
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