Buy A House With No Cash? Maybe.

May 2nd, 2011

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No, it is not the boom market of 2000-2005 where crazy loan programs allowed anyone to get a home loan with no cash and no income. But there is a way to get a loan with no cash out of pocket, or at the very least, very little cash out of pocket. I am talking about an FHA loan. I’ll show a real example below of how this loan can happen.

Address: 506 G ST SE, WASHINGTON, DC 20003
Asking Price: $749,000

FHA requires a 3.5% down payment. FHA also says that all of the down payment can come from a gift from a family member or close friend, and the seller can pay up to 3% of the sales price towards your closing costs. And the closing will be approximately 3% of the sales price. Hence, with a gift and a seller credit, you would have a no money down loan! Or, at the least, if you do not have a family member or friend to gift you the 3.5% down payment, if you can come up with it, and then can negotiate that the seller builds in the closing costs, you have a very small down payment loan.

$749,000 sales price
3.5% down payment = $26,215
Approximate closing costs to DC, title company, lender, escrows: $22,000

Base FHA Loan Amount: $722,785
FHA Mortgage Insurance Premium (1%): $7,227.85
Total FHA Loan Amount: $730,012.85

30 Year Fixed Rate, 4.75%, 0 points
730k @ 4.75% = $3808/month
taxes = $451/month
homeowners insurance = $90/month
mortgage insurance = $692/month
Total Payment = $5,041
Tax break approximately: $987
Net mortgage cost after tax break: $4,054

For $0 out of pocket, or worst case for $26,215 out of pocket, you can own this house. FHA allows for a maximum loan amount, in a high cost area, up to $729,750. After a 3.5% down payment, this means you can buy a home up to a purchase price of $756,200 with as little as 3.5% down, or possibly no money down and no closing costs, if you can get a gift for the down payment, and the negotiate that the seller build in the closing costs.

You still need to show some “cash reserves”, usually at least 2 months of your payment. But you can use a 401k, IRA, or other illiquid accounts to show that you have some emergency money after settlement. The asset does not have to be liquid, like a checking account, savings account, or money market account.

Feel free to contact me for a pre-approval on an FHA loan, or any other loan type. Mortgage guidelines can change at any time, so always talk to an experienced mortgage loan officer who will help you understand the current guidelines and how they might apply to you.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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