It can be tough to buy a home without any money for the down payment. Luckily, there are many ways to get into your dream house with little or no cash. You just need to know where to look and what options are available for you. This article provides some helpful tips on how to buy a fixer-upper house with no money.
Here is a list of 8 options you can take to buy a fixer-upper house with no money:
- Home renovation loans
- Seller financing
- Investors to buy your home with cash and help get rid of other debts at the same time
- Rent to own
- Partner up
- Loan from your 401k
- Hard Money Lenders
- Private Money Lenders
1. Home Renovation Loans
Home renovation loans come in handy when you want to buy a fixer-upper house but you don’t have money. Remember, fixer-upper houses require a lot of maintenance works before moving in. Therefore, they qualify for home renovation loans.
Home improvement loans can cater for some costs you will incur by buying a fixer-upper house. For instance, you might need some cash to put new tiles on the floor or paint your house.
Home renovation loans are easy to obtain because there is no credit check required. Plus, they can be used for other purposes if you don’t want to use them as a down payment. However, home improvement lenders may charge high interest rates and hefty fees.
Before applying for home renovation loans, you should consider whether it will be worth the withdrawal fee and interest rates charged by lenders. For instance, if you get a loan of $20 000 at 15% interest rate annually to improve your house value by $30 000 after renovations, then the lender will charge about $3000 in fees and interests by the time you complete your home renovation.
Things to consider before taking a home renovation loan
Before taking a home renovation loan, ask yourself the following questions:
- How much money will be added to the value of my house after renovations?
- Can I afford this extra cost, including interest and fees by the lender?
- What is the total amount that I need from this loan?
- How long do I plan to keep this house?
Best home renovation loans
Here is a list of some of the best home renovation lenders you can check out if you want to buy a fixer-upper house with no money:
2. Seller Financing
This is the second option on how to buy a fixer-upper house with no money. In seller financing, you are not burdened up with the mortgage process. Therefore, this is different from normal cases when the process is handled by a financial institution. In the case of seller financing for a house, you as the buyer signs a mortgage with the seller.
Seller financing is a good option if you want to buy a fixer-upper house with no money. The loan amount is not fixed and the seller sets it as per his/her own wish.
Also, you can set up your payments according to your convenience of monthly or yearly instalments. You do not have to worry about interest rates because this type of financing does not involve banks, credit unions etc. This is just like how you buy a car because you are paying the seller directly.
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3. Investors to buy your home with cash and help get rid of other debts at the same time
These people do not bother about the condition of your house. They are interested in buying it so that they can get their money back by selling off this property at high prices.
Owners who want to sell their houses quickly prefer these kinds of deals because there is no need for them to wait for months or years until a buyer comes along.
In case you want to buy a fixer-upper house, this is a better option for you. You can sell your current house to these investors and use the money to buy your preferred fixer-upper house.
The only problem with this type of arrangement is that it can be difficult to find someone who wants to buy your house at the same price as you are looking for. It’s not like there are many people standing outside ready to give you cash for your property! The best way out in these situations is through real estate agents because they have access to different investors.
4. Rent-to-Own
Renting to own is an excellent option for those who want a fixer-upper house with no money. In most cases, rent-to-own comes in handy when you don’t have a good credit score to access a mortgage.
In the rent-to-own approach, you as the buyer agrees to rent a home for a certain amount of time with the option to buy it before the lease expires. The agreement is made up of two parts: a standard lease agreement and an option to buy.
What happens is that you pay rent throughout the lease period. In other cases, a percentage of the payment is applied to the purchase price.
It is worth noting that in a rent-to-own agreement you as the buyer will pay the seller a one-time, usually nonrefundable, upfront fee. The fee is normally referred to as the option fee, option consideration, or option money. Therefore, if you don’t have enough money to buy that fixer-upper house you have been looking for, you can decide to rent-to-own.
5. Partner Up
If you don’t have enough money for that fixer-upper, consider partnering up. You can reach out to people within your neighbourhood, friends, and relatives who understand how fixer-upper houses work. Partnering up with someone else can help you buy that fixer-upper house.
When you find the right person to partner up with, remember to have a written agreement. In life, things do change and a person may decide to shortchange you in the deal. Therefore, you are safe off having a written agreement, if possible before a lawyer. The agreement will detail the percentage and payment plan you agreed with the partner.
6. Loan from your 401k
Loans are typically high-interest forms of credit. But, there is an exception for loans from your 401k plan provider. Most of the time you can borrow money without paying hefty fees or having to pay it back immediately (a good thing if you want more time).
Taking a loan from your 401k is a good approach to buying that fixer-upper house you have been dreaming of. First, you are not spending your own money. Second, the interest rate is lower than other conventional loans (commercial lending companies usually give out loans at rates between 9%-12%). Third, there may be no fees or penalties for late repayment of the loan.
As with any complicated investment transaction always consult a financial professional first before making any decisions that could have a drastic impact on your financial future.
7. Hard Money Lenders
Hard money lenders are a good option for those who have access to cash or other liquid assets that can be used as collateral. The hard money lender will finance the purchase of a home and charge an interest rate from 10%-15% on this loan.
If you want to buy a fixer-upper house but lack enough money, hard money lenders might be a good option for you. In addition to providing the loan, a hard money lender is also able to provide assistance with renovations and construction of the property as well as advice on what improvements will increase its value most effectively.
8. Private Money Lenders
You can approach a private money lender to finance your fixer-upper house. Private money lenders are people or smaller companies, such as family and small mortgage banking firms that provide loans for real estate purchases using their own funds instead of those from investors.
Private money lenders potentially offer more flexibility than hard money lenders because they may be willing to finance repairs on the property themselves if it will increase its value.
Although private money lenders may be willing to provide a loan even if your credit score is poor, they can be risky. You should understand that although these lenders must adhere to federal and state usury laws, not all these laws apply to them. Therefore, they might take advantage of that to exploit you in terms of interest.
To be on the safe side, carefully read the loan agreement terms carefully before signing. You can as well compare the agreement with those of formal lending institutions when choosing a private money lender to finance your fixer-upper house.
Wrapping Up
Financial constraints should not deter you from buying that fixer-upper house you desire. In this guide on how to buy a fixer-upper house with no money, you have learnt the best approaches you can take to get that house. These actionable tips have been tested and used by different people to purchase their fixer-upper houses with no money. Therefore, they can still apply to you if you take the right procedures.
