Florida Home Loan Options and Advice For Buying a Home With No Down Payment

You see the ads all over the place, but is it really possible for buyers to obtain Florida real estate with no down payment?

Bob Bruss, a well-known real estate expert, says in a recent column that it absolutely is… although you will need good income and good credit in order to get your hands on a deal. Bruss himself has purchased a primary residence as well as several rental houses for nothing down. Your first home won’t be your ultimate dream home, but it will be a start. If you’re responsible, it can be done. But what does “nothing down” even mean?

The simple definition is that zero cash from your pocket will be used in the purchase of your home. However, that doesn’t mean the seller won’t receive cash from the sale — contrarily, the seller often receives 100 percent cash in a no down payment purchase.

If you have good income and good credit, Florida home loan providers are often more than happy to loan you 100 percent of your home’s purchase price. But it will not come cheap. The lender will usually charge an above-market interest rate any zero-down mortgage. They’ll surely require private mortgage insurance (PMI) as well, a monthly bill that covers the first 20 percent, or riskiest part, of the mortgage. In short, PMI premiums are not inexpensive.

If you really short on cash, Fannie Mae and Freddie Mac, the nation’s top secondary market mortgage buyers, will even loan up to 103 percent of your home’s purchase price in order to help with closing costs. Just to be sure you can qualify, it’s smart to shop for a Florida home loan before you shop for a house or condo. When you receive written pre-approval from an actual lender (not just a pre-qualification, which effectively means nothing), you will know your maximum mortgage amount.

As much as conventional wisdom dictates you should put as much down as you can, there are two major reasons smart buyers are often able to buy a house or condo for little to no cash:

1. They don’t have the cash. If you are short on liquid cash, that’s no reason not to buy a home. Even if you’ve got it, why tie it up in your residence when there are many ways to buy a home for little to zero cash.
2. They are smart buyers who understand leverage benefits. By maximizing your leverage, and therefore diversifying your assets, you can get a greater return on your money.

For instance, let’s say you buy a $300,000 house for the full amount - $300,000 cash - and the house appreciates at the historic average rate of 5 percent annually. In 12 months, it will be worth $315,000, a 5 percent yield on your investment. If instead, you obtained a Florida home loan for the whole amount, you will earn $15,000 on zero investment for an infinite yield. Yes, you have to make the mortgage payments, but you’re more than making up for the cost.

There are creative ways to buy a home for nothing down, the most obvious being to obtain a 100 percent (or greater) Florida home loan. This method requires good income and good credit, however, and can be expensive. Let us say you don’t need 100 percent financing, but don’t want to tie up your cash in a down payment either. The first step is to get pre-approved by a lender for the maximum mortgage you can afford.

The next step is more exciting: using the written lender’s mortgage pre-approval to go ahead and buy the home you want. If you keep the mortgage balance below 80 percent of the home purchase price, you have alternatives:

1. The 80-10-10 PLAN, in which you obtain an 80 percent first mortgage, a 10 percent second mortgage, and pay a 10 percent down payment in cash.
2. The 80-15-5 PLAN, in which you pay only 5 percent down, and the seller lets you carry a 15 percent second mortgage, or the lender arranges a 15 percent Florida home equity loan. Either way, you receive leverage benefits, buy your home for practically nothing down, and avoid costly PMI.

After pre-arranging your Florida home loan through the steps above, then it’s time to start shopping for a place. Be sure to understand how much home you can afford, though. When you have a grasp of this, and see the home you want, go after it. With the help of an experienced buyer’s agent, be prepared to make an offer before another buyer pulls the rug out from under you.

Just be sure your offer contains two key contingency clauses:

1. A satisfactory appraisal of the home, as required by your mortgage approval letter.
2. A professional home inspection.

The appraisal should not be a proble, and be sure to accompany your inspector to be certain there are no latent or surprise home defects that go discovered. If your inspector discovers a serious undisclosed defect, then you can either negotiate for a “repair credit” toward your purchase price or cancel the sale and obtain a refund of your earnest money deposit if the seller refuses to bargain. So if you keep your wits about you, and follow the steps above, the Florida home loan process can be manageable even if you’re short on cash!