Anatomy of a Deal: How to Buy Property w/ No Money Down

Alright, so this is long overdue. This is how I, a girl with $7000+ credit card debt, $30,000+ in student loans, on a $60,000 salary bought a condo with no money down.

1) Credit Score: I had pretty decent credit - 698 to be exact. I achieved this by having 2 credit cards active for more than 24 months and NO late payments in the last 24 months as well. Yay for those annoying email reminders from creditors. Lenders prefer Credit Scores of 660+. They start to get giddy when you hit the 720 range.

2) Assets: I had some stocks worth about $12,000 set aside for me in my name in a Scottrade account that had been open for at least 4 years. I also had a 401K account from my previous company with about $11,000 worth of Ryan Homes stock. Hence, I met the requirement of having at least 6 months PITI reserves seasoned in my account for more than 2 months. For example, if my mortgage (PI) was $1600 + 320 (Taxes) + 80 (Insurance) = $2000/mo (PITI), I would need $2000 x 6 months = $12,000 reserves in an account with my name on it. Thus, I liquidated my stocks and used $8000 as an Escrow Deposit (or Good Faith Deposit) since it is customary to issue one when making a purchase offer. Usually the Escrow Deposit is 3% of the selling price.

3) Debt & Income: Well, I have a lot of it (Debt that is!). Who doesn't? To offset the Debt to Income Ratio Problem (Lenders like to see you use only 38% of your gross monthly income on your PITI + other monthly debt payments), I went Stated Income Verified Asset (SIVA) for my Loan. Hence, I was able to STATE my income so that my DTI was right at 38% exactly. It also helped that I had been employed at my company for more than 2 years and that I had the same Job Title (Project Manager) for that time period as well. Lenders like to see stable employment history (usually 2+ years). Since Project Manager is a vague job title, I could state my income without skepticism from the Lender. Other "vague" job titles that can accommodate a SIVA are: Account Executive, Sales Manager, Construction Worker, Executive Assistant, etc etc - basically positions where income can vary and which can be supported by salary.com. Now, if your Job Title was Paralegal or Nurse or Teacher, well, there are specific salary ranges for these jobs and it would be pretty difficult to justify a Teacher making $8000/mo.

So there's the Financing Part. Time to talk Real Estate. I essentially wanted a condo (since that's all I could afford in La-La Land of astronomical property values) in an up and coming area with a seller who was extremely motivated and who would offer seller concessions in the form of a credit for my non-recurring closing costs. Closing Costs are usually about 2.5% of the purchase price. They cover transactional costs (such as escrow, city and county fees, etc).

Low and behold, after 2 months of searching and waiting, I found a 2 bedroom/1 bath (2 bedroom condos can rent out for more and have better resale value than 1 and 3 bedroom condos since if you want 3 bedrooms, you might was well rent/buy a house) condo in NW Pasadena for $315,000. Found out from my Appraiser that it's value check was $355,000 (thus the property was undervalued). Made an offer of $310,000 with $8000 back for closing costs (thus the seller would net $302,000). They counter-offered with $318,000 with $8,000 back (seller net $310,000) for closing costs which I then accepted. I was adamant about obtaining closing cost credit because I wanted to limit the amount of money I would be leveraging. Basically the less money out of my pocket, the better.

After a Purchase Contract is ratified and accepted, Escrow is opened and the Buyer is in control for the next 17 days: Buyer performs the Physical Inspection + Request for Repairs, Appraisal, obtains Loan Approval, receives and looks over all Seller Disclosures and the Preliminary Title Report, and can cancel at any time within the 17 day period. After all contingencies are removed by the Buyer, the Seller is now in control. If the Buyer cancels after the contingencies are removed, the Buyer can lose his/her deposit to the Seller. Ouch, you really don't want that to happen. Thus, it's important for you and your Agent to understand the time frame and legality of a Real Estate Transaction. Thank you Captain Obvious.

Escrow usually lasts 30 days but can be extended for a variety of reasons and is negotiated between the selling and buying Agents, which can be a tedious, frustrating process since both sides have fiduciary responsibility to their own side. So, sometimes it's impossible to meet in the middle and deals fall through. Don't be discouraged though if this happens to you, it happened to me on the first condo I almost bought in Highland Park. I lost about $700 but it was well worth it to pull out of a bad investment sooner rather than later.

Anyway, hope that was educational. Til next time...Peace!