Posted by - You don’t need cash or savings to buy a house
- Homeownership with zero cash contribution is real
So you want to own your own home, but you don’t have any money. You don’t have a penny in savings.
Can you buy your own home without any money of your own – or is that just pie in the sky?
Odd as it may seem, it is possible to buy a house starting with zero money to your name.
It’s all about knowing how it can be done. This blog explains some of the ways you can do it.
At a high level, there are 4 main ways in which you can become a homeowner starting with no money:
A. You borrow the whole purchase price
B. You are given the deposit
C. You convert an asset into cash for the deposit
D. You buy using a “no money left in” property strategy.
Here are some effective possibilities under each category:
A. You borrow the whole purchase price
1. You source a 100% mortgage
There is no generally available true 100% mortgage at the present time. However, there are a few mortgages which amount to the same thing.
One much publicised example is Lloyds Bank’s “lend a hand mortgage”.
If you are a first time buyer, Lloyds will lend you up to 100% of the purchase price provided a family member saves at least 10% of the purchase price with them.
The savings acts as a security for the 100% loan and the family member is free to withdraw their money after 3 years.
2. You borrow the deposit
If you are able to borrow the deposit and borrow the balance of purchase price by a regular mortgage, you will be able to get on the property ladder without any money of your own.
Ideally the deposit loan should be interest free, interest deferred or low interest, minimising the risk that you will fall into financial difficulties by having to pay back both the deposit and the mortgage.
B. You are given the deposit
1. Gifts from the “Bank of Mum & Dad”
The term “Bank of Mum & Dad” is given to the financial help that parents give to children to help them buy their own home.
As it has become more difficult for first time buyers to buy, parents have increasingly come to the rescue by helping out their off-springs.
Depending on the financial means of your parents, you can seek a gift from your parents for the whole purchase price or the deposit.
It is good practice to seek professional advice in advance of any gift so as to be sure as to the practical, legal, financial and tax implications for both sides.
If you are to inherit from your parents in any event, it can make sense for you to receive your legacy early – enabling you to get on the property ladder before house prices become even more unaffordable.
2. Gifts from grandparents or other relatives
Grandparents or other relatives may also be a source of a financial gift to facilitate your purchase.
If a gift is not appropriate, you may be able to agree a repayable loan, which will be just as effective in terms of allowing you to buy without any money of your own.
C. You convert an asset into cash for the deposit
1. Sell something valuable
One way to raise cash for your purchase is to sell a valuable asset which you are lucky enough to own.
That may include things like a car, luxury watch, boat or jewellery.
2. Cash in a financial asset
Another route to raise cash from assets is to cash in a financial asset you own – such as a pension, trust, policy, endowment or share portfolio.
This could be an asset owned by you or by a parent or other family member. Best practice is to find out in advance whether it is appropriate to cash in the asset – you can do that by seeking appropriate professional advice.
Delayed completion (completion is delayed to make a profit)
Bridging loans (a temporary loan which can make a lasting impact)
Buy refurbish & refinance (a great strategy to add value to a property)
D. You buy using a “no money left in” property strategy.
1. Buy refurbish & refinance
There are several ways in which you can end up owning a property without putting any of your own money into the purchase.
These are often referred to as “no money left in” or “no money down” purchases and a common example is “BRR” or “buy refurbish & refinance”.
Using a bridging loan, you buy a rundown property and refurbish it, adding significant value. If you get everything right, you will be able to pay off the bridging loan and all your costs of the purchase and refurbishment when you refinance or remortgage the property – leaving you as the owner for zero financial cost.
2. Delayed completion purchase
Another way to achieve a “no money down” purchase is to employ a delayed completion strategy.
Here you exchange contracts on a rundown property using bridging or borrowed funds. You arrange a delayed completion period – perhaps several months – giving you the time to carry out substantial value-adding works to the property prior to legal completion.
If you get everything right, you will end up with a property worth much more than you paid for it and after refinancing and paying everyone, you will end up owning a property having made zero contribution.
The two strategies mentioned in this section are of course complex and carry risk factors.
You should seek comprehensive advice and assistance with any property strategy where you lack the necessary knowledge, experience or expertise.
Conclusion
It is certainly possible to become a homeowner without any savings or money of your own.
However it is not child’s play and you will give yourself the best chance of being successful if you thoroughly read up on the subject and, above all, seek advice and assistance from a suitable professional such as a solicitor, financial adviser or property coach or mentor.
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Have you been able to buy a property without having any money of your own? How did you manage to do it? Please leave your observations or comments below.
You may also find the following blogs useful:
Mum & dad to the rescue (how parents can help their children to buy their first home)
10 easy ways onto the property ladder (must know ways to become a homeowner)
Buying a property fast (wacky and wicked ways to raise a deposit)
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Dalton Barrett
Rebel Property Coach
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