If you’re a real estate investor, the question “How to buy a house with no money?” has probably come to your mind many times. Houses are expensive and it can feel impossible to build up enough money to save for a house. Especially these days.
So let’s fix it and show you how to buy a house with no money.
My experience
Why would you want to buy a house with no money? You ask. the sums you need for down-payments in many parts of the country (like mine) were nuts before covid and are even more nuts now.
I was thinking about buying a house now and I was talking to my mortgage broker the other day about possibly buying another place locally. His return question was “How many hundreds do I have?”
It took me a while to process it. I knew he must be talking about down-payments but hundreds? Then it dawned on me. He meant “how many hundreds of thousands of dollars of cash do I have for a down-payment.”
I quickly realized that while I am very well off financially. Even I don’t have the money to go buy a million-dollar house willy nilly.
There are a few ways to buy a house with no money
There are many different methods that teach you how to buy a rental with no money BUT… buying a house with no money at all, can be a little challenging. When you put a little money down, it gets much easier. Buying a house with no money can be an option though if you are really stretched!
What’s typical though? What are we escaping from?
What is traditional financing like?
The most traditional of all loans involves you putting down 20% of the house’s purchase price as a downpayment.
That might not sound too bad but a cheap house around me now is over a million dollars. I put in an offer on an $850,000 house recently. It sold for $1.15M. The person backing that deal up would traditionally have needed to front $230,000 of cash to secure that house. That’s a lot of money. Doable, yes, but a lot.
Sure you can put up less than 20% but even paying 10% is still $115,000. Still a lot of money!
So let’s go big and see how to really drive that number down to something less scary.
Best methods, tricks and hacks
The winner methods
#1 – Just put less down
The easiest method to put little money down on a house is to just sign up for a mortgage with a small downpayment. A conventional mortgage is 20% down but you can get what’s called a high-ratio mortgage and do anything down to 5% and people won’t stop you.
The bank will charge you extra money in the form of a higher interest rate which isn’t great but you can do it.
The real hack here is that if you are going to live out in the country or you are a veteran you can skip the painful increased payments. So really I just recommend this for that group.
Full disclosure: I bought a $530,000 rental on a 15% down mortgage, so it’s not all bad. I had the money to pay 30% but the difference in interest was so small I just kept my cash and bought 2 other houses.
#2 – House Hacking
House hacking can be viewed in a few different ways. I view it as the ultimate way of how to buy a house with no money. It’s buying a rental and getting a personal house for free. Basically, a rental property that you live in too which makes it a 2-for-1 deal!
Let’s assume you have a big house. Even if you have a big family (4-5), there will still be a lot of empty space in the house. So then if that extra space was rentable units like in a duplex or a triplex, you’ve found a free rental house hiding inside your house!
If you plan it right the rent money from all this can cover your monthly mortgage payments. And voila… you’re living for free. Two houses for the price of one. You have a rental house and your own house but you only bought one! That’s house hacking and a way to get one house with no money.
I think quadplexes are the most amazing for this method but any house that you can live in with a tenant and not have to share a bathroom is great in my books.
#3 – Crowdfunded real estate
This is one of the “how to buy a house with little money” methods. With crowdfunding, you can become a shareholder of property and enjoy some of the benefits. Rent for example.
Your rental income on a given property won’t be as high as it would normally be because there are other people investing in the same property but it’s still rent money and usually crowdfunded real estate is in the big leagues so there is plenty of rent to go around (think large apartment buildings).
You still need to put some money in, but you can skip the whole downpayment side of the equation which can make the minimum investment pretty tiny in real estate terms.
Read where I cover that concept, the best platforms, and review crowdfunded real estate in-depth.
If you get in on a crowdfunded fund, you’ll be buying houses from your profits without even knowing it.
The flop methods
#4 – Re-mortgage a property you own
If you want to buy a house with no money, and you already have a house you can re-mortgage it and release its equity.
I’m not a huge fan of remortgaging things I own to take on more debt (because that’s double debt!) but it works well if your house has gone up in value or if you’ve paid a big chunk of your mortgage down already. Just know that paying your 2 mortgages is going to take a long time and leave you feeling house poor.
And, of course, the more money you get from your home’s equity, the more money you’ll be able to spend in your new home.
For example: You buy a house for $100,000 with a 20% down payment and an $80,000 mortgage. Your equity (aka your portion) in this house is $20,000 to begin.
If your house goes up in value, to $150,000 for example, your equity now is $70,000. And if you’ve already paid $10,000 of your mortgage debt, tada you have $80,000 hiding which you can use to buy a whole house.
Even better when you re-mortgage, if the times are good you might be able to get better terms like improved interest rates to make your life even better.
If you have enough equity to draw upon, you can easily use it to buy real estate with no money down. Or no additional money anyways.
#5 – REITs
REITs stand for Real Estate Investment Trusts and in short… they’re stocks. Stocks in real estate firms. This is one way of how to buy a house with no money (almost) since it’s just stock. No minimums, no rules. Just buy one.
So you have a very simple way of “owing” parts of a property or company. Without the huge capital or the headaches. It’s simple too just like buying a stock, which brings liquidity. Unfortunately, that also has a host of negatives that tag along.
It’s not all sunshine and rainbows. Stocks are not real estate and therefore you don’t get the real estate benefits that are the whole point of buying houses. It’s why I don’t really like REITs. It sounds good for portfolio diversification but when a recession hits, your REITs will go down as many other stocks will, so skip it and go straight to the source with crowdfunding.
#6 – Lease options
Lease options (aka rent-to-own homes) are a way to buy a house with no money upfront.
You basically make an agreement with the seller to start renting their house and pay monthly or yearly additional rent on the condition that at the end of your agreement you’ll buy the property for some predetermined price.
You get to stay in the house you plan to own while giving no money upfront and at the same time locking in the full purchase price. Simple as that!
It sounds a little too good. And it is really pretty good as long as you don’t back out of buying the house. Then it’s horrible.
#7 – Seller Financing
You get loans from the bank right? That’s the most common choice but there are other ways.
What is seller financing? Seller financing is when the house’s seller finances the property for you. Essentially, they replace the bank and act as lenders for you.
Therefore, you buy real estate without involving any banks. Banks have rules but people just make them up.
The agreement terms depend on you and the seller but one of the easy negotiating points is how big the downpayment is. Maybe even if there is one.
That’s how to buy a house with no money! No down payments and just some monthly payments for the property.
Even though this sounds good, sellers who offer this tend to have an agenda and that’s why I’ve never seen a good deal with seller financing. Bank rates are 2% these days.
No normal person will sign away hundreds of thousands of dollars for a 2% return. Suspicious right?!
#8 – Hard Money Loans
This method is used when investors can’t get a traditional bank loan. Hard money loans are loans from private investors or other individuals. This is actually a popular method of how to buy a house with no money or how to buy a house with little money.
There’s a catch though. Be careful… Hard money loans are usually short-term (1-3 years) and the interest rates can get unbearable. We’re talking about 5% or even 10% more than a normal interest rate.
I took a mortgage in 2017 for ~7% interest that I thought was smart at the time. I regretted it. The interest rate didn’t kill me, the closing fees were horrible though! Never again!
The property you’re getting a loan for is also used as collateral. In case you can’t pay back your loan, the lender has every right to aggressively take the property and do what they want with it.
I’ve talked with some hard money lenders. Here’s a secret. They want you to default. Then they keep your money and the house. Shady business!
It can feel pretty smart at times. Especially if you are flipping a house since you are “going to get it done so fast.” But the deal only ends up being good if you time everything just right and don’t hold the loan for long but that’s risky!
Skip it!
TL;DR – How to Buy a House With No Money
- Houses require an absurd amount of cash to buy
- If you are struggling, paying less money down, house hacking, or just getting into crowdfunding are your best bets.
- Most of the normal “no money” methods are no good though, like hard-money loans, seller financing, lease options, REITs or remortgaging something you already own.
