If I were to ask you how much you thought you needed to have saved up to buy a home, what would your answer be? A lot of people think that you need to have a minimum of 20% of the purchase price saved up in order to buy a home. I am here to tell you that that could not be further from the truth. Let me tell you about a first hand experience I had helping my buyer land a beautiful home in Tacoma, WA with zero down.
Here is the Story:
This last summer(2019), I was contacted by a buyer that was looking for an agent to represent him in buying his first home. He let me know that he had no extra money saved up to put towards a down payment, but he wanted to stop renting. I told him "sorry buddy you're screwed." Just kidding. But, I did assure him that it wasn't going to be easy but it was definitely possible.
So, he found a great lender (Nora Aladieff at Envoy Mortgage) to get him pre-approved with a first time home buyer loan. This allowed him to qualify for a 3% down conventional loan. The trick here is that he didn't have to put 3% down, they were able to wrap this into the loan through a first time home buyer package.
So, with this pre-approval in hand we set out on our search. He was extremely open to all areas of Tacoma, which was very helpful with his price range of under $300k. I knew we could find something for him in South Tacoma where prices were a little lower and it also helped that he only needed a 2 bedroom/1 bath. Every time we went out we would tour anywhere from 3 to 6 houses and he would like one of them enough to make an offer.
In case you don't know anything about the home buying process, there are closing costs involved on both the seller's and buyer's side. As far as the buyer's side of closing costs go, these include things like: title insurance, appraisal costs, loan origination fees, discount points, credit report charges, etc. A good rule of thumb is that these typically run about 2-4% of the cost of the home. So, I said earlier that my buyer didn't have any money to cover this stuff so how did he avoid paying this? The answer to that question is that for each home we made an offer on we included that in our purchase price and had the seller pay my buyer's side of the closing costs. For example, if the list price of the home was $250k we would offer $255k but have the seller cover the buyer's closing costs. To the seller this looks like a net offer of $250k, but for my buyer he doesn't have to come up with roughly $5-6k. He simply has to pay an extra $20 a month in his mortgage instead because this is wrapped into his mortgage.
Ok, hopefully your gathering all that information and your head isn't spinning. But, don't worry just ask me if you don't understand and I can try and explain. Anyways, back to our home buying situation. So, here we are actively making offers. We made offers on 6 different homes with the philosophy of the seller paying closing costs. Sometimes, we had to go well over asking price knowing that our offer was possibly weaker than others because we weren't putting any money down and we were asking them to cover closing costs. Also, remember that we are in a crazy seller's market so being a home buyer with no cash is super tough! But, that didn't stop us. Thank god my buyer didn't lose faith! I felt like more of a counselor at this point LOL.
We had 5 offers rejected before we found the ONE! It was a super cute 3 bed/2 bath listed at $270k. It wasn't SUPER competitive because it was on somewhat of a busy road, but there were still 2 other offers. So, we offered $280k and of course asked for the seller to pay closing costs (around $7k). They agreed to it with no counteroffer and the rest was history. The inspection went great and we closed on the home a month after submitting the offer. My buyer couldn't have been more happy to be in a home that he owned instead of renting.
Ok, so now that you heard the story of how my buyer closed on a home with zero money out of pocket but, I do have to disclose one thing: Earnest Money. We did have to put down $1000 of earnest money (If you do not know what earnest money is then read my article titled blank and scroll down to the earnest money section). The amazing thing here is that he got this $1000 of Earnest Money returned back to him at closing! Another disclosure I do need to make is that he did have to pay $400 to have a buyer's inspection, which is totally worth it! So, in total out of pocket he paid $400 to get into his house.
The possibilities are truly endless with what you can do with buying a house and every scenario is different. This is why I love what I do because I am constantly learning all the time! Please leave your comments/questions below and I will be more than happy to answer them.