How I Bought My First Home With No Money Down

As first time homebuyers my husband and I were a bit skeptical when we were told we could easily afford a new home with no money for a down payment. Our first thought was that we would suffer the consequences with a high interest rate or some other fine print nonsense that we wouldn't find out about until months after moving in. Despite our skepticism we comfortably bought a new house and seven months later are still finding the whole process to have been unbelievably simple and uncomplicated. There were just a few simple steps we took to ensure that we did the right thing before we signed ourselves away.

The first and most important step we took was deciding to find a good real estate broker that not only knew the facts about buying a home but was trustworthy. We got ours through a friend, but if you don't know anyone the best thing to do is shop around. The worst thing you could do is go to one real estate office and believe everything you are told, especially if they know you are a first time buyer and sense that you have no clue what you are talking about. Our first experience came about when our annual rent increase was about to occur and I spotted an advertisement in the local real estate book.

I had been dreaming for months of my new home, browsing through hundreds of ads in those little real estate magazines you pick up at the supermarket. Owning a home had seemed impossible since we couldn't seem to save enough money for a down payment. Yet I knew our high rent was equal to or even more than a mortgage payment. While looking through one of the magazines I stumbled across an ad that stated things like "absolutely no money down" and "anyone can own their own home". So I figured why not check it out? We called and scheduled an appointment with the organization for the following week.

Once we arrived the woman who greeted us was cheerful and happy to help us out. She had us fill out paperwork and ran our credit. She said our credit was great and we would have no problems buying a house. This was the first red flag for us. We were already well aware of our credit score having previously requested our credit reports from the three main credit agencies - Experian, Equifax and Trans Union, so we knew she was lying. Asking her for the score and having it be 100 points higher than reality was another clue. Being aware of your credit but not letting on that you know your score is one good way to test the integrity of the agency you are dealing with. It also helps to empower you in the process and allows you to be aware of what to expect.

After we met another agent who was the friend of a friend, we knew we had our guy. He immediately acknowledged that although our credit wasn't great he was certain he could help us out. He was upfront and honest about the home buying process and explained many laws to us. When we told him about our first experience he told us that many agencies use a "beefed up" system to boost the confidence of potential buyers. What determined our success was choosing to buy house that wasn't going to put us above our predetermined set amount for a monthly mortgage. We gave him a monthly number and he gave us a price range of homes we could start looking at.

After we found the house we wanted to buy our agent set us up with a mortgage broker who came up with three different options that met our monthly allowance. Due to our not-so-great credit score we would have to "buy points" to lower our percentage rate or suffer with a higher rate. After all was said and done, the fees were adding up to almost $10,000. We barely had half that amount so we worked it out with the homeowners to include the fees in the cost, raising the purchase price by $10,000 and adding the fees into our monthly mortgage.

If you know you are not going to have the money for a down payment or the fees, the best thing to do is look for a home $10,000 less than what you can afford. This way your monthly mortgage will still still be what you originally planned for. In fact, the fees turned out to be a little less than what we figured and we actually got a check at the closing! Not only did we not have to put any money down, but we received money when we bought our home!

It is also important to get a fixed rate mortgage so that your rate never increases. We wanted a fixed rate but needed to work something out so that we could afford the plan. Our mortgage broker was honest and spent a few weeks finding just the right plan for us. The fact that he took the time actually made us trust him more, as opposed to if he had just told us, "no problem" up front. Be wary of anyone who dismisses all of your concerns since they may not be thinking about what you are saying and just giving you a standard pacifying answer. Any agent or broker who never says, "I'm not sure" or "I'll have to get back to you on that one" either knows everything or may be lying.

Knowing this purchase would be our first home and likely be resold in the future, we opted for a 10 year interest only plan which got us the fixed rate. With this plan we would pay interest only for 10 years, but the rate would stay at the low rate of 5.4%, which we paid a few thousand dollars to get. In the end it was worth adding into the cost of the home to ensure we'd have a low rate that would never change.

Overall, the most important two things we did were become knowledgeable about our own credit as well as find someone we trusted as both a real estate agent and mortgage broker. Trust your intuition shop around as much as possible until you find the right person. Learn about your credit history and the laws involving home buying. Scour the web and read articles like this one written by real homeowners. Ask friends and family to share with you what they think they did wrong in their own home buying process or what they would change if they could.

Most importantly, crunch your numbers and know exactly what you are able to afford before you set out in the process. Going over your monthly limit can not only cause stress and problems in your household, but may cause you to lose the house. Odds are if you are paying rent and don't have money to save for a down payment, then you can't afford a mortgage that is more than your current monthly rent. Be realistic and remember to have fun in the process. Buying your first home can be a little frightening but if you make the right choices it can also be a very rewarding experience.