This guide is designed for those buyers or investors that have special circumstances.  While there are reams of information available on the subject of buying property with no credit and/or no money down, this will give you a practical methodology for accomplishing your objectives.  Note that the information in this guide is equally applicable for commercial transactions as well as residential.

Keep in mind that most lenders look at a merged report from all three major credit reporting agencies. A credit score is determined from this information.  Next, the lender looks at your gross monthly income and total monthly debts.  They apply ratios to both the debt and the income. Together with these figures and your credit score, they determine the type of loan for which you qualify and the amount.  If you are an investor, you will be subject to the guidelines under a non-owner occupant program. These are typically more stringent than owner occupant programs as the lender thinks that they have more risk on loaning money for investment property.

Lets focus on the three major areas that prevent most buyers from buying.  We will present some practical ways in which to buy property after each category. Keep in mind that these techniques can be used no matter what you situation might be.

In this situation we assume that you simply have not established enough credit to sufficiently do a real estate transaction.  You might be a cash buyer or right out of school.  In any case, you have not had the need to borrow money such as car loans or credit cards.  This too can lead to a low credit score.  You are in the position to systematically build your credit profile to grade A.  You need the help of a specialist who understands the credit game. 

Hard Money Lenders:  These lenders are what we call asset-based lenders.  They lend on security that they have in the property and not using your credit scores and other debt and equity ratios.  My experience is that they will need a 70% loan to value.  That means they are looking for 30% from you up front.  They tend to charge a high interest rate for this money, as much as 15%.  These lenders are most often used for a short-term fix.  In a typical scenario, the buyer has found a great deal and needs to close quickly.  The buyer puts up the 30% and purchases the property.  The buyer does the required fix-ups, markets the property to a tenant or buyer.  With the final tenant or buyer in place, the buyer refinances the property if he will hold it or cashes out!  Your local bank can also extend special one year construction loans whereby the investor puts up 20% of the purchase price and the lender will loan back an amount equal to that 20% to be used for rehab expenses.

Wholesale Selling:  In this situation, the buyer finds a great deal from a motivated seller.  The buyer simply ties up the property, usually using a purchase contract or an option.  He then sells that purchase contract or option to another investor who then makes the final purchase.  Tying up the property is done by giving yourself the right to assign the contract to another party. 

Partnering:  In this case, you could bring in a co-signer who has sufficient credit.  You could offer that cosigner some of the profit that is built into the deal for his signature.  (See the discussion below for more information on partnering)

In this situation we assume that the credit has been damaged beyond immediate repair.  The availability of investor mortgages will not be possible until the credit repair process has started and been completed.  Again, you need the help of a specialist who understands the credit game.  We suggest you call Bruce Buckless at First Summit Mortgage at 888-284-2201 to get that process started.

Flipping:  Most all of the creative real estate programs teach you how to tie up a property, usually under a lease-purchase agreement, find a buyer and double-close the deal taking your profit out of the middle as the difference between the price you negotiates with the original seller and the price for which you sold it.   This is commonly called flipping a property.

While I have done several of these deals in the past, there is an alarming trend that has been taking place.  A growing number of mortgage companies are not lending money to buyers where the title of the subject property has not been properly seasoned, meaning it has not been titled in your name for at least six months.  This is especially true when your buyer is categorized as a sub-prime buyer due to his credit.  Such is the case with most buyers you will “flip” your property to.  FHA and VA have not had problems in this area, YET!

These deals are somewhat sophisticated to contract not withstanding the hassles of this new selective lending.  I personally have chosen to not to focus on them given the difficulties in getting buyer financing if his credit is sub-prime.  The flip transactions are possible, but beyond the scope of this report.  If you have a motivated seller who has a good property that they are willing to sell to you creatively, please call me if you need help structuring the deal.  I deal with these transactions on an individualized basis.

Taking "Subject To":  In this case, we are buying the property subject to the seller's loans.  The main concern here is that in almost every buyers loan, there is a due on sale clause that states that if title is transferred in any way, that the loan CAN be called due.  Despite this problem, I prefer this method as I have control of the deed and can maneuver the transaction without getting tied up with title seasoning problems as mentioned above.  There are some legal loopholes and techniques that can get you around the fear of this due on sale clause as mentioned above.  These are as follows:

Note that all of these violate the seller's due on sale clause!  The question is will the lender find out about it or really care about it.  My experience tells me no!

In all of these cases, the underlying loans must continue to be paid.  These transactions are very technical and require a complete understanding of real estate law and lending rules.  I would be happy to point you in the right direction on how to get more detailed information on these types of transactions.  We have three excellent courses written by an attorney that we sell covering these subjects in complete detail.  Please call for details.

Table Funding:  In this case, you will need a somewhat flexible seller.  The seller originates a FIRST note and deed of trust at the closing table.  At the same time, a note buyer purchases the note and deed of trust for a discount of the face value (usually 4-9% depending on the buyers credit).  The seller uses the proceeds from the note sale to pay off his underlying debt and pockets the rest just as in a normal sale.  The buyer is qualified up front with the note buyer so the note discount rate to the seller is known up front.  The seller can also elect to carry back a second mortgage to help get the deal closed if necessary.  These note buyers can deal with low credit scores.  The lower the score, the more flexible or motivated your seller needs to be as the note discount rate will be higher.  We can arrange note quotes for you.  You need only have the buyer complete a simple application and give a summary of the sale.  Call for details.

We assume here that some credit exists but there is a lack of finances to buy property.  There has always been lots of talk about buying no money down.  My definition of buying with no money down is none of my own money!  You will never get wealthy on hand-full of creative transactions.  You must be able to adapt to situations as the come along.  That means building your real estate tool-box so to speak with knowledge and a network of the right players that can help you get things done so that you have the means to close on something that makes sense and money. Buying with no money down is not the purpose of this section.  Many of the sections discussed in this guide can be used to buy with no money down.

Partnering:  At some point in your investment career, the cash will run out.  You can only have so much cash available for down payments on real estate.  I often use partners to accomplish my objectives. I have found that once I have located a good property, placed it under contract and lined up a buyer or tenant, finding money partners is simple.  Under this scenario, you should have all of your homework completed and packaged up in a real estate business plan.    Your business plan should take into account all acquisition costs evidenced by a completed good-faith estimate from your lender, all fix-up costs evidenced by written licensed general contractor bids, and all disposition costs evidenced by the contract or agreement you have with your final buyer or tenant.  This information should be used to complete a pro-forma analysis of the transaction.  Pro-forma means the form that you expect the transaction to take.  This plan should include the following:

• An general overview of the transaction                       
• Complete property data
  • Copies of all contracts pending
  • Listing if available
  • Market analysis including average sales and time on market
  • Tax card
  • Survey if available or needed
  • Title search if available
  • Appraisal if needed
  • Written rehab bids if needed
  • Pictures
  • Demographics if needed
• Revenue
• Expenses
• Debt service
• Before Tax Profit
• After Tax Profit
• Complete Financial Measures
• Your resume
• Six references

The basic question to ask yourself is would you invest in a project of the shoe was on the other foot?  Take the time to put this together.  Good deals will be worth it! 

No Documentation or Low Documentation Loans:  These are loan programs that require limited or no documentation to prove your income and/or credit situation.  They will pull your credit and determine what your credit scores are.  If the scores are satisfactory, then you provide whatever documentation needed, if any, and proceed with the transaction.  These loans typically have higher interest rates than a traditional loan.  It is difficult to find these programs for non-owner occupants.

Self Directed Investment Funds:  There are some unique IRA funds available in the market place today.  These funds allow you to self direct your IRA's investments in purchasing real estate, contracts and notes just to name a few.  While the guidelines must be studied carefully so as not to violate the IRS rules, it is possible to roll-over some of your 401K or IRA into this self direct plan to buy real estate in the name of your plan.  The catch here is that the profits need to go back into your plan and not your pocket.  This is a great way to take advantage of all of the benefits of owning real estate and plow those profits into your IRA for the future.  It is perfectly legal to pay yourself a reasonable management fee for managing your plan's assets.

Subordination of Collateral: If you find a seller with a property with lots of equity or free and clear, offer him a sizeable down payment if he will owner carry financing on the balance.  For example, you locate a property owner with a free and clear $100,000 property and offer him $33,000 down.  That will make his ears perk up!  Next, you find a hard money lender who is willing to loan you $33,000 secured by a FIRST mortgage on the property.  Give the proceeds of that loan to the seller at closing.  The seller gets a promissory note and mortgage for the balance of $67,000 which is subordinate to the hard money first mortgage.  This is a true nothing down deal since you have not laid out any of your own money.  Make certain that the first and second mortgages do not exceed the fair market rent for the property.

I hope that this guide has put some creative ideas into your head.  In my experience, the best transaction starts with a motivated seller.  You should not only be searching for motivated sellers using your real estate broker, but searching using your own grassroots methods.  Calling for sale by owner's (FSBO) is probably the best way to find these sellers.  Of course you must get over the fear of rejection and confrontation that is associated with making a cold call.  That of course, is the subject for another professional.  Calling another person advertising their property should not be that scary.  The million dollar questions you should ask a seller (after asking the basic property bio questions) are these: