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Real estate is getting up there in price, and here's the question: How can I afford to buy a home when my down payment requirements keep improving? You know, it's one thing to buy real estate at these new high prices, but it's another thing to have to come up with the down payment. I mean, you used to be able to buy a home, you know, with a few thousand dollars or $10,000. But on some of the new prices, it is crazy how out of hand that it is getting.
Well, in today's video, we're going to talk about a new way to buy a home with no down payment, and there is no gimmick to this video. This is literally a new program that just came out. So today, I'm going to share with you the four options that you have for traditionally buying a house with traditional down payments, and then we're going to talk about four different ways of buying real estate with no down payments whatsoever.
So let's just kick off with what is a down payment, right? A down payment when buying a home refers to an initial amount of money that you pay upfront towards the purchase price, and it's typically expressed as a percentage of the total home price. So, for example, if a bank is going to lend most of the money on this house, they want you to have some skin in the game. They want you to show them that you're serious, and so you come up with a small amount of money, they put down the large amount of money, and they now know that you're committed, that if you had some kind of hardship in your life, that you've got something to lose if you walk away from your house.
Here's a typical example of a down payment on a home. The home is worth $300,000, and the bank is requesting a 20% down payment. Well, 20% on $300,000 is $60,000 upfront, and then the remaining balance is financed through a mortgage. Well, keep in mind that down payments affect your loan amount, your interest rates, your overall affordability, and we're going to talk about how to maybe not put $60,000 down on a home, but four options instead that literally take no money out of your pocket whatsoever.
But first, let's talk about the four ways that people traditionally buy real estate with traditional down payments. The first is to get what's called a conventional loan. It's the most popular loan type, and it's available with a majority of the lenders. People usually use conventional loans to to buy a primary residence that they're going to live in, or maybe get a second house or a vacation home, or even buy an investment property like a rental. Now, if it's a home you don't live in, banks usually like to see a minimum of 20% down. But if it's a home you're going to live in, they usually want to see 3% or 5% down payment.
The second type of loan is what's called a jumbo loan. It's like, oh, this isn't like a $3 or $400,000 house. This is something way bigger than average. And as of 2024, any loan that is greater than $766,550 is going to be considered a jumbo loan. Jumbo loans are not available by every lender, and they usually require a higher credit score, usually a credit score of 700 or higher, instead of a conventional loan that might be like a 620 or higher. And if it's a jumbo loan, they want to see more skin in the game. So we're not really talking about 3% or 5% down payments. It's usually 10 to 20%.
The third type of mortgage that people traditionally use for their down payments is what's called an ARM. It's an adjustable rate mortgage, and basically, it means that I can start with a lower than average interest rate, but as time passes, my interest rates will adjust higher and eventually to whatever the current interest rate is. ARMs are not super popular right now because rates are pretty high, and there's this unknown future like, oh no, what if rates go even higher? I don't know if I really want to lock in a temporarily low rate and then five years from now have my interest rate be like 10%. So when rates are low, ARMs are pretty popular, but with higher rates, not so much.
And the fourth traditional type of loan that people use for their down payments is an FHA loan. This is a government loan. It's basically a loan that is insured by the Federal Housing Administration. The government has an incentive to make sure that its residents can actually buy real estate, and so the FHA exists to basically make lending on a home as easy as possible. They'll start with really low credit scores, like as low as 580, and often they're requesting a 3 and a half% down payment. And even if you have a worse credit score, like around 500, which is pretty not really good, they might require a little bit more, like a 10% down payment. This is the government basically saying, we need our people to be able to get homes, so we as the government will say, we'll take lower credit scores and will also help finance with these really low down payments, like 3 and a half%.
Now, that's the traditional approach where you're going to put three, five, 10, or 20% down to to get in the game of real estate. And with the median home price currently at $430,000, a 3 and a half% loan is like $115,000 if you wanted to put 5% down. Now we're talking tens of thousands of dollars, and that's really concerning.
And like I promised, in today's video, I'm going to share with you four different options for zero down payment. The first zero down payment that we're going to talk about is a VA loan, and this is specifically eligible for members of the US military that that are either active duty, their veterans, their National Guard, the reservists, and it's even available for their surviving spouses. Bottom line is, if you're employed by the government in the military, they make it really easy for you to get into a house. They don't have minimum down payments, they don't require mortgage insurance, they don't even have credit score requirements. It's crazy.
And yet, there's a kind of a problem with this zero down payment option. It's like, if I'm not in the military, then I got no VA options, and that's true. Number two, you have USDA loans, right? These are guaranteed by the U.S. Department of Agriculture, and they're basically trying to get people into more rural areas. And they also have options where you can put down literally 0% no dollars. There's no credit score requirements, there's no down payment requirements. And if you don't mind living rural, a USDA loan might be your cup of tea.
But what we're going to do right now is we're going to go into two very different and very new zero down payment options. United Wholesale Mortgage is one of the largest mortgage lenders in the nation, and they just launched a program in May of 2024 that offers a zero down payment option for qualified home buyers. According to CNN, the program will allow buyers to pay for 97% of the home's value on the first mortgage, and then instead of you putting a 3% down payment, they'll give you a small second mortgage for 3%. This new program is a true zero down payment program, but it does have one little drawback. CNN continues to say that the second mortgage will not accrue interest, but it's going to need to be paid back either in full as a balloon payment when the home is sold, when the mortgage is paid off, or if the owner refinances. Unfortunately, this program is limited to people that make 80% or less of an area's median income. So in your area, if people make $60,000 a year, then you might need to make $48,000 a year or less to qualify for the zero down payment option.
So far, for the first three of the four no money down programs, there's been restrictions, right? VA, you've got to be in the military, or you got to live with a USDA loan, super rural, or you're limited by the amount of money that you can make to qualify. What about the rest of us, or those of us that like to have more flexibility? Well, today, I'm going to share with you my favorite approach to no money down real estate. It is the fourth option that doesn't require a down payment, and that's called a lease option.
I wrote this book, "The Straight Path to Real Estate Wealth," and and what it does is it basically shows a way of buying real estate without a down payment through a specific form of seller financing. In essence, you're going to an owner that already owns the home, and you say, I would like to buy the home over time, and I want you to basically finance it for me. And it's amazing how many deals you can get in where what the owner is interested in is getting that monthly payment just like a rent, instead of actually collecting a down payment. I've bought a ton of homes with no money down whatsoever on what's called a lease option, and in this book, I show you every step of how to do it for free. In fact, if you want to get a copy of this book for free, it's also free. I don't always have copies of this available, but click the link right now, and if it says there's one available, fill out your form, and let me get it shipped in the mail to you so that I can show you how to start getting in the game of real estate right now, but with no money down.
You know, we can even get creative at one more level because I know what you're thinking, Chris, what if I want to buy real estate, and what if I don't have money for a down payment, but what if I already own a home that has equity? Is there a way to tap into that? Well, yes, there is. And actually, using equity is one of my favorite strategies for building a portfolio of homes. If you click right here, I'm going to share with you the five steps of how you access equity in your home so that you can invest more or buy more real estate. Click right here, and I'll see you right over there.