Here’s when it's smart for buyers to opt for a zero-down loan.

Today we’re talking about when might it be smart to have a zero-down loan. 

In this hot market, our strong loan options have become much more limited, taking out essentially anything that’s a zero down payment—or so you would think. One of our buyers had enough money for a 5% down payment on a $450,000 purchase, but right now it’s not so much about the top value or top dollar amount that you’re going to offer. It’s actually more important how you can guarantee to the seller how you can get there. So it’s the money you have for an additional down payment if the appraisal doesn’t come in at the agreed-upon price, and sometimes creativity and good communication can get you further than a conventional loan amount. 

Fortunately, we have both. Remember Sarah? She joined forces with me this year, and she’s been helping these particular buyers for the last couple of months. The house was offered in Algona for $370,000. Sarah called the listing agent and talked with them about what is most important to their sellers. Is it the most price that they can get ultimately? Or is it the guarantee over a low appraisal if it doesn’t reach the agreed-upon price? 

“Sometimes creativity and good communication can get you further than a conventional loan amount.”

Our buyers were already planning to offer their top of $445,000 to this seller, so the top price really wasn’t an issue for them if it appraised. Turns out, the seller’s concern was that the appraisal would be low even if the buyer’s offer was high. By changing from a 5% down to a zero-down loan, our buyers were able to free up $20,000 that they could put toward a low appraisal.

Why would a buyer want to pay more than the house appraised for? Here’s the deal: Appraisers are confined to the houses that are already sold, and the prices are public. That means the prices on these homes are determined at least one or two months in the past, and prices are rising so quickly that appraisers simply don’t have access to the value that homes are worth in today’s market, and that makes a valuation very difficult. Once a house closes, the price is made public—not the appraised value, but the price that the seller and the buyer ultimately agreed on. And then others will price their upcoming houses on this public sales price. Therefore, that agreed-on price now becomes that value. 

Plus, when the buyer is paying over the appraised value, they’re still not paying any more than what they already agreed to the seller in the first place. So they still felt like that was a fair value in today’s market. And when they’re making a higher down payment, the loan is actually based on a lower amount, so they’re going to be able to have a lower payment and pay less for the house in the long run. Pause this video and think about that for a minute. Rewind and replay if you need to, because this is important. 

So back to our buyers. We have a plan in place. The sellers are comfortable. The buyers are comfortable, and they’re going to get their keys in just a few days. 

Who do you know who needs creativity and resourcefulness in today’s market? Message me, email me, or call me with your info and let’s talk about how we can help calm the logic in this red-hot, frenzied market. Stay healthy, stay blessed, have an amazing day, and I look forward to talking with you soon about how we can help!