Buy A House With No Cash? Maybe.

May 2nd, 2011

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.

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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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