How To Buy A House With $10,000

Just to be clear, this is not about buying a house for $10,000, this is about buying a house with $10,000. For starters, you will need to have $10,000, which you will use for your down payment and to cover the cost of your home inspection. All other closing costs (including the appraisal and your first year of homeowner’s insurance), your tax and insurance escrows, prepaids and everything else can be paid by a third party (at the closing) who is not by you.

Recent Existing Home Sales data from May (2019) reported a Median Sales Price for a single family home in the U.S. at $315,000 And you can buy that house with a 3% down payment conventional loan using $9,450 of your $10,000 we-want-to-buy-a-house fund. A home inspection happens early in the home buying process and that will set you back about $500 leaving you $50 for your we-just-bought-a-house celebration! 

Now your lender will probably ask you to pay for the appraisal upfront, usually with a credit card, but you can ask to have that included as part of your closing costs. Explain to your lender rep that you are getting a seller credit and that you want to discuss interest rates and lender pricing that includes a lender credit.

Now let’s look at all of those other closing costs, escrows, “prepaids” and everything else that will be due at closing, and there will be plenty of those. Annual real estate taxes come in all shapes and sizes and can vary significantly. Add in title and recording fees, survey, lender fees (most lenders will even let you pay for your first year of homeowner’s insurance, at the closing), and so forth could all add another $5,000 to $10,000 to the money you will need to buy this house.

This is the important part so pay attention; all of the “everything else due at closing” costs can be paid with a seller credit and a lender credit.

Before we go any further, let me emphasize that it is important to discuss seller paid closing costs with your real estate agent early in the home buying process. Real estate markets vary geographically and seller help with closing costs may be common in some markets and unheard of in others. Work closely with your realtor to determine what your strategy will be before you make an offer on a house and include the seller paid closing costs as part of the structure of your bid.

Conventional mortgage financing allows a seller to contribute up to 3% of the purchase price towards your closing costs, escrows and everything else. For this house, that would be $9,450, which may or may not be what you would need (depending on the real estate taxes). And keep in mind that the seller may be willing to contribute to covering some of your closing costs but maybe not everything.

Let’s guesstimate the total closing costs, escrows and everything else at $10,000 and the seller agrees to pony up $8,500 of that in the form of a seller credit or contribution towards your closing costs. The remaining $1,500 can be paid using a lender credit resulting from what is known as par plus pricing.

Par pricing is market pricing, or whatever interest rate is offered with no additional cost (points) to the mortgage consumer. Typically, the zero point rate is par pricing and right now a conventional loan can be gotten for right around 3.75%. Par plus pricing would be an above market interest rate which generates additional revenue to the lender. That additional revenue becomes the lender credit that will pay for the rest of your closing costs. So if 3.75% is offered with zero points, 4.00% will generate close to $1,500 in additional revenue to the lender, which can be applied as a lender credit. Presto, closing costs, escrows and everything else are paid for with a seller credit and a lender credit and not by you.

A seller credit, a lender credit and your $10,000 are all the ingredients necessary for you to become a homeowner.

 Many communities offer 2nd mortgage loans and grants that can be used for down payments and closing costs. In fact, these can be combined with your conventional 3% down mortgage for as much as 105% of the purchase price!

In the interest of full disclosure, opting for a higher interest rate will result in a higher monthly mortgage payment and more interest paid over time. Buying this house with a 4.00% interest rate will cost you $44 more each month and $15,774.39 more in interest paid over the 30-year life of your mortgage, as compared to the 3.75% interest rate.

There are lots of quantitative and qualitative variables to consider here and individual financial circumstances are as varied as DNA profiles. This is a home buying strategy that needs to fit your financial profile, as well as your quality-of-life goals.

So tally up what you have managed to save, organize that big yard sale, rev up your eBay seller prowess, look into borrowing against your 401K and see if you can cobble together enough of a war chest to take a shot at becoming a homeowner. 

All you need is $10,000.

This post first appeared on Forbes.com. To see the original, click here.