How To Buy A Home With Little To No Money

With all of the lending practices changing, many buyers feel they simply don’t have enough money to become homeowners. Their credit rating is good enough and their income is good enough, but the challenging part is the cash up front.

A buyer needs cash for three reasons:

1. Down Payment

2. Closing Costs

3. Prepaid Items

The down payment is a buyer’s responsibility, meaning the buyer either has to have the money (or be able to get it within the rules) or find a way they don’t need a down payment or at least a smaller one.

The closing costs and prepaids are expenses involved in actually obtaining a loan and buying a piece of property. These costs are negotiable between the buyer and the seller. There are limits on the amount the seller can pay, but usually the actual costs are less than the limits.

With proper negotiating, the seller could be convinced to pay the buyer’s closing costs and prepaids, so that leaves the buyer only having to focus on the down payment. The buyer is much better off in most cases to have the seller help them with the closing costs verses focusing solely on getting the seller to move off his price. For example, let’s say the seller is willing to contribute $5,000 to help the buyer out. If the seller reduces the sales price by $5,000, the immediate benefit to the buyer is a savings of about $25 a month in payment. If $25 a month is that important to the buyer, then the buyer is in the wrong price range.

If the seller pays $5,000 of the buyer’s closing costs and prepaids instead of a price reduction, then that’s $5,000 the buyer can keep or doesn’t have to come up with. Obviously, the buyer would rather save $5,000 cash up front instead of $25 a month. The agreement would still be subject to the home appraising for a least the contract price. But in this market, the buyer stands a good chance of getting both his closing costs paid AND a good price on the home.

In this example, the buyer is now only left with figuring out the down payment. There are still some programs, if the buyer qualifies, with no down payment or a very low down payment, such as FHA, VA, USDA and Down Payment Assistance. In that case, the buyer can purchase with no money out of his pocket.

For more information on this subject, or any other real estate or financing topic, please contact Jack Bailey at or (336) 294-4949.