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Purchasing Real Estate With No Money Down
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Aug 2005
Many real estate investors think that money will make or break a real estate deal. A lack of funds can stop a potential purchaser from bidding on a property. However, it is possible to purchase real estate with no money from the buyer's pockets. If the deal is right, the funding can easily fall into place.
Although there are many ways an investor can purchase real estate without handing over a down payment at settlement, it's important to understand the pros and cons of each type of agreement before signing on the dotted line. Here are some examples of no-money-down real estate deals:
BORROW THE MONEY
Probably the easiest way to purchase a property with no money down is by borrowing the down payment. Either find a lender offering a low interest rate, or use a home equity or other line of credit loan, which will still have the tax benefits of a normal mortgage. You can also borrow from your real estate broker - arrange to borrow the broker's commission for a short time and use those funds for the down payment.
ASSUME THE EXISTING MORTGAGE
Some purchasers can use a "subject to" contract, where the buyer uses the seller's existing financing for part of the purchase price. Using the seller's existing financing is especially successful if the current loan has a low interest rate. The buyer receives the title to a property in return for making payments on the seller's mortgage. Research of the existing loan is imperative, however, in that some loans have a due-on-sale clause, which prohibits the new buyer from assuming the mortgage.
LEASE WITH OPTION TO BUY
Many purchasers do not realize that they may be able to rent a property from the owner with an option to buy. Under the terms of the lease/option agreement, the buyer and seller negotiate a sum to be paid at regular intervals for use of the property. This agreement allows the lessor to purchase the property at a predetermined price during the term of the lease. Usually, a portion, and sometimes all, of the rental payments will be credited toward the purchase price.
SELLER FINANCING
Another easy way to acquire property with no money down is with the help of the seller. For example, a seller may decline a down payment in return for higher monthly payments. Or, the seller may pay for the buyer's down payment in order to sell the property faster.
NEGOTIATE THE DOWN PAYMENT
Along with everything else in a real estate contract, the amount of the down payment and who pays it is almost always negotiable. A buyer may elect that the seller pay the down payment, or give credit at closing for the buyer's down payment. A buyer could also request to pay the down payment in installments, whether in monthly installments or as a balloon payment at the end of the year.
SWAP PERSONAL PROPERTY
Anything you own may be useful as a cash substitute for a no-money-down deal. For example, if the seller is planning to retire, your unused motor home would probably be much more valuable than a cash down payment. Cars, boats, campers, furniture and appliances are all acceptable replacements for a cash down payment.
EXCHANGE YOUR SKILLS
A buyer may be able to offer skills instead of cash. Accountants, contractors, mechanics, plumbers, doctors, lawyers, and so on, all have tradable skills that would be useful in lieu of a cash down payment.
TAKE ON A PARTNER
Finding other cash buyers is another way to purchase a property with no money down. However, this could get messy as other hands get into the deal. To simplify this process, you can organize the deal on a smaller scale by bringing in one or two more people at the most. In return for their financing, you can promise to take on the responsibilities of putting together the deal and managing the real estate investment. You may also try to work out a similar deal with the current seller.
PICK UP THE SELLERS DEBTS
If you find a seller who needs cash to pay off other debts, you can offer to assume those debts instead of making a down payment.
OFFER A HIGHER PRICE OR BETTER TERMS
Some owners may be willing to accept a higher price for the property, even if it comes in installments, in lieu of accepting a down payment.
COMBINE MORTGAGES
If you already own property, you could combine mortgages in order to provide the seller with cash at closing without using your own money. You could also suggest that the seller place a second mortgage on top of the first and keep the cash, while you, the buyer, assuming both loans.
EXCHANGE PROPERTY
If you already own property, you may want to exchange it for another property. You could either exchange the property with a buyer, or use it in combination with a small amount of cash to obtain the property you want.
Research, Research, Research
There are certain buyers that may be more suitable for accepting no money down offers on a property than others. If a property has been on the market for a long time or is being advertised as a must sell, the seller may be more willing to negotiate. In addition, as with any real estate investment, always research the property before completing a sale.
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Comments
Submitted by on Mar 22, 2010 - 4:15PM
We are in the process of buying a house that my in-laws own - its already owned outright with no liens.
We agreed on a sale price, and the terms to pay it off in three years (monthly payments (equal installments) for three years and then a balloon (refinance final balance) payment for the remaining balance. We are being charged 3% interest for the 3 yrs that we are borrowing.
What legale document do I need to document the transaction and keep everyone in synch?
Submitted by on May 19, 2010 - 10:56AM
Hi Sal, thanks for your inquiry. LegalZoom is a company dedicated to making it easy and affordable to create your own legal documents, but we can't offer specific legal advice. We can help you find an attorney with our attorney referral network: http://attorneyconnect.legalzoom.com.
Submitted by on Mar 31, 2011 - 3:46PM
Very similar situation. I'm really looking for a rent or lease to own contract. Can you advise?
Submitted by on Apr 15, 2011 - 10:27AM
Hi Kevin. Thank you for your inquiry. At this time, LegalZoom does not offer rent or lease to own contracts. Feel free to refer to http://attorneyconnect.legalzoom.com/ to search for an affordable attorney in your area to assist and advise you on this situation.
Submitted by on Apr 4, 2010 - 12:27PM
I'm looking for a sale of my trailer on contract with money down, with a 14 month contract, and buyer responsible to for maintenance and upkeep plus paying the lot rent to the owner of the trailer park.
Submitted by on Aug 28, 2010 - 9:14PM
I need two contracts one for a motorcycle and one for a food trailor I am selling them on time I want protection on my side and mention of how the contract will play out
one is 6500 with 400 month payments and the other is 5500 and 220 an month can you help
Submitted by on Sep 3, 2010 - 3:20PM
Hi Kathryn, thanks for thinking of LegalZoom. Unfortunately, at this time, LegalZoom does not offer the types of contracts you are looking for. Check out our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on May 23, 2010 - 1:12PM
I need a contract to sell my mobile home and land that it sits on. They are financed separately and I am willing to sell the property for a monthly payment and I will make the payments to the current lenders and give the buyers the deed when I receive them after they are paid off. Where can I get this contract?
Submitted by on May 28, 2010 - 8:05AM
We are attempting to make a simple sale of a property to friends of the family who lived with my mother-in-law. She died a couple of years ago and wanted them to be able to live there if possible, but it wasn't specified in a will (only verbally and the family agrees there is no problem with this). They paid us an agreed upon rental price for one year in search of a loan to purchase. They've been unable to get a loan and have asked the family to sell it to them instead. Do you have legal documents we can use to do a closing with them while we retain the lien on the house?
Submitted by on Jun 7, 2010 - 12:26PM
Hi Charlie, unfortunately, LegalZoom does not offer documents regarding liens and properties. However, we can help you search for an attorney to help you. Please refer to http://attorneyconnect.legalzoom.com
Submitted by on May 31, 2010 - 2:28PM
Is it possible to draw up a contract for lease purchase in the state of Texas when there is a balance on the mortgage?
Submitted by on Jun 16, 2010 - 5:29PM
Hi Ann, we really appreciate your interest in our company. LegalZoom makes creating legal documents easy and affordable, but we can't give specific legal advice about whether or not you can create a contract for your property, nor do we offer that specific document.. If you want help finding an attorney, try our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Jun 27, 2010 - 5:05PM
Do you have any lease purchase documents that satisfy the guidelines in Pennsylvania?
We are working with a potential buyer/leasor and haven't found a working document that we are comfortable with as of yet. Any recommendations are helpful.
Thank you.
Submitted by on Jul 15, 2010 - 10:36AM
Hello, unfortunately LegalZoom does not offer Lease to Purchase documents at this time. If you like, we can help you find an attorney to assist you! Please visit http://attorneyconnect.legalzoom.com
Submitted by on Jul 12, 2010 - 10:14AM
Hi I am looking for a mass. state lease with an option to buy real estate agreement. This property is a 50 acre farm located in western mass. and has a 2000 square Ft. residence along with a barn and garage. So I am looking to create a 12 month lease at a fixed cost monthly with a set purchase price open that can be exercised anytime during the 12 month period beginning December 1,2010. I would also like to apply a deposit at signing that will be applied towards purchase price at closing. There will be animals and some feed included in the lease price along with some small rental income from TAW bee keepers. Can you suggest a lease for me. Thanks Mike DeMarco
Submitted by on Jul 30, 2010 - 2:20PM
Hi Mike, thanks so much for your question. Unfortunately, LegalZoom doesn't offer the type of document you may need. We can, however, help you find an attorney with our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Jul 14, 2010 - 10:15AM
Putting a down payment on mobile home and pay remainder in a year while renting during the year. I am concerned about protecting my imvestment in the event something happens to the owner before I am deeded the property.
Submitted by on Jul 30, 2010 - 2:27PM
Hi Sharon, and thanks so much for your interest in LegalZoom. While we can't advise you about the best documents for your situation, if you'd like to give us a call (1-800-773-0888, 7am-6pm PST, M-F) or send us an email (psinfo@legalzoom.com) we'd be happy to let you know about the products we offer which may assist you. If you'd prefer to contact an attorney, we can help you find one with our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Aug 17, 2010 - 5:46PM
Is there anywhere I can find information on rent-to-owning houses(if needed, in MI)? I need all the info I can get. We are thinking about getting a house with a seperate smaller house on the same property as well as three huge lots of land behind the houses. We were just interested in finding out info without actually getting a lawyer involved. thank you.
Submitted by on Sep 16, 2010 - 5:27PM
What needs to be done for a sale of a house.? My son is selling it to me for cash and his loan is pd off on it so no lien on property. . Do we need to go thru a lawyer?
Submitted by on Sep 23, 2010 - 10:55AM
I need a simple single family home lease with an "option to buy" clause.
I just need the legal wording and we will fill in the blanks, when the amounts and timeframe have been decided upon.
Submitted by on Oct 7, 2010 - 12:41PM
Hi there, and thanks for your question. Unfortunately, we don't offer the type of documents you may need. We can help you find a lawyer to answer your questions, though. Check out our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Jan 24, 2011 - 10:28AM
I have a couple interested in buying a house & lot. They have no money to pay down and at this time unable to get a loan. We have agreed to rent them the house for one year with the rent at the end of the year being deducted from the selling price as a down payment. They have agreed to pay the taxes, and insurance during this year. Is there a contract that would cover this type of sale
Submitted by on Oct 23, 2010 - 1:44PM
We are purchasing a home on contract for deed basis. Recently, my husband died. Is this part of his estate?
Or since the property is not titled in our name it is not part of the estate or is it?
Thanks
Submitted by on Nov 22, 2010 - 5:13PM
We are sorry to hear of your loss and we extend our deepest condolences. Just a reminder: LegalZoom makes it easy and affordable to create your own legal document, but we don't give specific legal advice. We can help you find an attorney with our attorney referral network: http://attorneyconnect.legalzoom.com
Submitted by on Oct 25, 2010 - 12:20PM
Our company is borrowing $30,000.00 from a husband and wife to purchase a machine. What is the best document to record this transaction?
Submitted by on Nov 22, 2010 - 5:27PM
Hi John, thanks for your question. Because LegalZoom is not a law firm we are unable to advise you on which document would be best for your situation. An attorney may be able to assist you on this type of document. Check out our referral network: http://attorneyconnect.legalzoom.com
Submitted by on Mar 16, 2011 - 8:57AM
My daughter is purchasing a property and I'am providing the funds for the whole amount. And Iam looking to set up a mortgage or payment plan with interest which she can claim at the end of the year
Submitted by on Apr 14, 2011 - 10:36AM
Hello thanks for thinking of LegalZoom. At this time, we unfortunately do not offer mortgage or payment plan documents. However, if you would like to search for an attorney to assist you, please feel free to refer to http://attorneyconnect.legalzoom.com
Submitted by on Mar 21, 2011 - 8:51AM
I recently purchased a small rental house. The occupants want to buy it but don't have the credit to do so. I would like to owner finance it for them but I don't know what to do.
Submitted by on Aug 31, 2011 - 6:10AM
Hi I am a contractor, I did work for another contractor which is buyiny realestate property and is collecting rent. The other contractor has not paid me and I would like to know if there is a document that I can use to put a lein on so that I can get paid? Please respond as soon as you can.
Thank you Scott
Submitted by on Oct 27, 2011 - 12:30AM
As many questions as are asked about lease purchase option agreements, it would seem Legal Zoom would offer a basic agreement highlighting areas of concern rather than referring every inquiry to a local attorney. Is there something about a lease purchase agreement that prevents Legal Zoom from offering a standard basic agreement form?
Submitted by on Nov 24, 2011 - 10:19AM
lease/option agreement
Where can I find a sample of this type of agreement?
Submitted by on Dec 7, 2011 - 11:22AM
SELLER FINANCING
Do you have a seller financing contract? And what would the cost be?
Submitted by on Feb 16, 2012 - 8:15AM
Hi Herby! While we do not assist in the creation of Mechanic's Liens, we have a great way for you to connect to local attorneys to discuss how to do so. Feel free to visit https://www.legalzoom.com/attorneys-lawyers/legal-plans/personal.html for more details regarding our Legal Advantage Plus plan!
Please note that we can’t answer legal questions in the article comments. If you have a specific legal question, click here to connect with an attorney.