Creative financing for first time buyer?

Question

In hopes of not sounding ignorant, are there any low to no money down financing options for a first time investment property buyer? My wife and I both have decent paying jobs, but after paying rent, vehicles, student loans, etc, there’s not much left over for saving, let alone 20% down. I’m looking for a structure that would at least allow me to break even, or create capital through something like the BRRRR method to use for future deals. Appreciate any and all insight and TIA.

Matthew Kwan · Answer

You can acquire a primary residence as low as 3.5% FHA or 3%-5% for conventional. If you are willing to sacrifice part of your life style, you can always consider living one room/unit of the house and rent out the other vacant unit out to lower your monthly mortgage payments!

@Albert Bui @Carlos Valencia

Daniel Tanasa · Answer

Hello Charlie,

There are may options yo can buy houses with $0 out of pocket. But you have to look for those deals, as they are not usually on the MLS. You can target low equity homeowners which are in foreclousure and will lose theitr house to the bank because they can't make the payment. You can buy it Subject to the existing mortgage, have them deed the property to you, you will catch up their areears and rent it out.

Another option is to do the BRRRR method, buying a distressed property from a wholesaler, direct to owner or even MLS sometimes, fix it up and force appreciation and then refinance all your money out.

Seller financing can be with pretty low money out of pocket sometimes, but usually still require some cash.

I did all the options mentioned above to buy properties with $0 or little money out of pocket. I actually got paid to buy some of my last few BRRRR's. They all work. you just need to see which one you want to focus on.

Denis Ponder · Answer

Most likely, the only way you will find something like that is through private lending with friends/family.

What is low money down to you, percentage wise?  5%?  10%?

BRRRR is a learning curve and most lenders aren't looking to fund 100% of a project for a newbie.  Additionally, you may be asked to show some availability of liquid cash/assets to weather a storm in case something unplanned happens.  And it most likely will.

There are some loan products available for low downpayment if you are willing to do a live and flip situation.  You can get some money to purchase the property and additional funds to renovate it as your primary residence.  Might be an option.  You do have to live in it for a certain period of time as a stipulation.  I don't know all the details, others on this forum can answer that better.

Why not buy a primary residence and live there for a while?  At least your money is working for you with an appreciating asset and you can move out and rent it out down the road.

Real estate isn't something you want to start/navigate while you are cash strapped.  Find a side hustle, tighten the belts, do anything you can to build up the savings.  You will need it on this journey, regardless of how well intentioned you and your GC's are.

Albert Bui · Answer

near 0% and 0% options with DPA's exist (down payment assistance) programs. There are pros and cons to using DPA with your average conv/fha loans ( yes this is how you arrive at 0% down or 100% CLTV or combined loan to value financing).

Conv and FHA lend up to 95-97% so that remaining 3-5% down is covered or partly covered by the remaining local DPA programs. Texas State has some of their own as well.

The down side to this seemingly free (not free but free or is it?) is that it typically comes with higher rates on the first mortgage, if you're low income enough you might qualify for near free DPA but most DPA's open to all income brackets are typically at higher than market interest rates. The first mortgage rate when using the DPA is typically higher too by .50-1.00% on average.

For these reasons I recommend our clients save their own 3-5% down to avoid these programs when available. Sure if you dont have your own 3-5% down payment then yes use DPA if you really want to buy.

After going over the pros and cons typically our FTHB'ers or first time home buyers end up getting a gift or bring in their own 1-2% down + 1-3% gift and end up with 3-5% down payment and borrow at regular FHA/conventional rates (avoid the DPA program rates).

This is actual experience. In the off cases of 10-15% of our FTHB'ers they'll end up proceeding with the DPA low to no down programs.

Hope that helps.

Sarah Brown · Answer

Would you be willing to buy a property you can move into it?  You can get far bette financing for own occupied properties.  Then you could house hack to make extra money for your next down payment.

Charlie Martin · Answer

Hi Denis,

This is great advice. I do plan on building up the savings as much as I can before that time comes as I don’t want to be ill prepared for unplanned events as you mentioned. Just curious if anyone else on here had a relatable situation with a lender and what the terms looked like for them. Thanks again!

Creative financing for first time buyer?

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