Buying an investment property isn’t just for people who can afford a large down payment; it is an opportunity many people can pursue. Learn creative strategies on how to buy a house with little to no money down.
The concept of buying a house with no money down is something that few people realize is within reach. But contrary to many people’s beliefs, it is entirely possible to buy a house without putting down a large amount of money.
Getting into real estate investing can seem daunting, with most banks requiring significant down payments and a 6-month cash reserve to cover the mortgage, but it doesn’t have to be as scary as it seems. Other ways to get into real estate exist. These methods require a little creativity and some work, but they can help you get into real estate investing with little to no money down.
Buying a House With Little or No Money Down
There are a few ways to purchase a property with little to no money down. Some tactics can work, but they rely on finding the right deal or lender, which can prove difficult, depending on your market. For those willing to work to find a hidden gem, the ROI can be worth the research.
Leasing to Own
Leasing a property is a great, fairly simple way to start investing in real estate without using your own money. With a leased property, you live in the property with an option to buy it at some point in the future. The contracts are relatively simple and can be written to allow you to opt out of purchasing the property. A longer lease period can allow you some flexibility to buy when the market is favorable, and home values are high.
Hard Money Loans
Hard money loans are another option for investment. With a hard money loan, the property itself serves as collateral, which means you can get a loan with a lower credit score and without money down to purchase a home. This home must be a good investment, though, because hard money loans can be risky. If you default on this loan, the lender has the ability to take ownership of the property.
Owner Carry Loan
An owner carry, also known as owner or seller financing, is a form of selling property where the seller finances the purchase. With seller financing, the seller finances the purchase of the property in exchange for regular payments made by the buyer. The seller keeps ownership of the property until it is fully paid for, when the title is transferred to the buyer.
Learn more: How to Prepare to Buy Your First Rental Property – Video
House Hacking
House hacking is a term for generating rental income from your primary residence as a way to get into real estate in a more affordable manner. House hacking relies on the goal of getting as much money as possible out of your home. Most home loans with low or no down payments are government-backed programs, and rental properties are ineligible for these loans. But as long as you live in the home, you can finance it with a government loan. You may even be able to purchase a multifamily property. First-time homeowners and veterans, for example, may be able to purchase up to a fourplex with their loan as long as they are living in one of the respective units.
For purchasers eligible under these guidelines, an FHA loan or VA loan can be an option to buy a primary residence without a traditional down payment. After you purchase the property, you can rent out the remaining units to help pay off the mortgage and earn additional income. Another method of house hacking is buying a property that allows for (or already has an existing) ADU or tiny home. Some people use this for the purpose of renting, either living in the tiny home and renting out their larger property or living in the main home and renting out the accessory unit.
Learn more: What Is House Hacking?
Selecting Affordable Locations to Purchase in
While location alone won’t help you buy a house with minimal money down, it can help you find an affordable property, thus further reducing the amount of money you will need to pay. Some cities are far more expensive than others, and some markets are cooling or heating quickly. As a general rule, smaller communities that are further inland in the U.S. are more affordable than the big, well-known cities or coastal regions. While those regions may be ideal to eventually move to or invest in as a housing provider, they are difficult markets and less than ideal for a first-time buyer.
Learn more: 5 Best Cities to Buy Your First House or Investment Property
Final Thoughts
Buying a house with little or no money down might seem unattainable, but it is entirely possible with some careful planning and knowledge of your laws and routes to funding. Look into your laws and regulations, and be careful to ensure that any contracts you sign are fair and legal. Thoroughly review these documents to ensure that you can get the most out of your experience purchasing a house.
