Buying A Home For $659 Down – A Case Study

As a Real Estate Broker in the business for the last 7 years I’ve noticed a growing trend on the social media front, on the news/entertainment front, among my peers and my own wallet. The cost of living has increased and home affordability is becoming a problem for a large swath of the would be “First Time Home Buyer” population.

It totally makes sense! The cost of goods and services has increased pretty dramatically over the past few years especially. Incomes haven’t exactly risen to match. I do have an article I wrote diving deeper into the cost of living topic. If you’d like to read that you can view it HERE. If you’re in the Gen Z or Millennial age group, this growing issue probably hits pretty close to home. You may have parents that have owned a home for a very long time and are reaping the benefits of long term home ownership. You may also be wondering if that’s even a possibility for you…

Well… depending on your circumstance, if you can come up with a thousand bucks, I am here to tell you that it is a possibility! As a matter of fact we were able to do just that for one of my first time home buyer clients this week!

 Meet Nate

This is Nate. He’s 22 years old and seems to like Dinosaurs a lot!! He falls into the Gen Z first time home buyer category almost perfectly. Nate has a full time job that pays ok, but was going to need some help coming up with a down payment for his first home. What Nate lacked in funds, he MORE than made up for in willingness to learn and roll up his sleeves to get the job done. I should note that Nate is my nephew, but I didn’t do anything above and beyond what I’d do for any of my clients. He didn’t get any special treatment. If anything I was a bit harder on him lol.. Lets get into it shall we?

Getting Pre-Approved

The first step you should take when getting ready to buy a home is to talk to a lender and see where you land. Your Realtor will point you in the right direction. Window shopping is fun and all, but if you don’t know what you can afford you should definitely keep you search limited to online browsing. Nate was an eager buyer and ready to learn. He wasted no time at all and got in touch with several lenders and ended up landing on one he liked.

Nate was able to qualify for a “First Time Home Buyer” grant in the amount of $7500.00. This was a tremendous help for him. Frankly it was the “Linchpin” to the whole process. Funding for this program is limited and is usually given out on a first come first serve basis. To see if you qualify I recommend you reach out to a lender or read more about it HERE. Nate ended up qualifying for a 3.5% down FHA loan. I’ll explain why that’s important shortly.

The Home Search

Nate’s purchase price cap was 150k max, a common First Time Home Buyer price. For those of you that haven’t been in the home search process here in Lincoln, that is a difficult price point to find a home and even more difficult to buy. Particularly if you don’t want it to be a piece of junk. For a properly priced and marketed home OF ANY KIND in this price point it’s not uncommon for the seller to receive 20+ showings and 10+ offers in a 48 hour time frame. It’s simple supply and demand. As home values have increased along with interest rates, debt has become more expensive. Making these price points crowded. You just can’t build this stuff for cheap anymore. So the existing inventory is what we got.

To compound our home search difficulty Nate was an FHA buyer. It’s not a bad loan program, it’s a great program for any first time home buyer. It actually comes with an added layer of protection for the buyer in the form of a conditioned based appraisal. Meaning if an issue was found, the loan wouldn’t close until the issue was fixed. Where that becomes a problem is competing with multiple offers at this price point. Typically it’s an “all cash” or “conventional loan” with no inspections that ends up being the winning offer in these price points.

So straight away I told Nate we were going to have to think outside the box to find him a home. I also told him that it was a near certainty that he was going to have to put in some work on whatever home we found to make it pass the FHA inspection / appraisal. He was completely fine with that so we pressed on.

Looking “Off Market”

Given Nate’s search criteria and financing I new right away that we’d never be able to compete on the open market at this price point. We didn’t even bother to look. Instead we limited our search to off market listings. By “Off Market” I mean properties that are either listed “For Sale By Owner” (FSBO for short) or not listed at all. In my opinion, looking at properties in this category can give you a real leg up in the negotiations. In my previous experience of working with FSBO’s they typically don’t have as much knowledge on current market conditions and what their home ought to bring on the “Open Market”. To read more on the disadvantages of selling “For Sale By Owner” click HERE. To make any deal work for my client, we were going to have to do some negotiations that the “Open Market” just wouldn’t bear.

After a couple weeks of searching off market our “Diamond in the Rough” appeared. This property was a perfect fit for Nate. It was in his desired neighborhood, had a newer foundation, roof, siding and windows. I’d say it needs a cosmetic rehab but was perfectly livable in it’s current condition. The best part? It was under priced. I did notice some peeling paint and a cracked window that wouldn’t pass inspection so I knew that was going to be an issue, but Nate was up to the task.

Negotiations

After determining that Nate wanted to move forward on this one we drafted up an offer. We ended up offering asking price with a $3000.00 credit to the buyer for down payment assistance. We also asked for any consumables / supplies we’d need to facilitate any FHA repairs that may come up. In return, my buyer would facilitate as many repairs as he was capable and would hire out the rest. The seller accepted our terms!

Once it was all said and done between the $3000.00 dollar credit from the seller and the $7500.00 grant, Nate actually had a surplus of money. He was required to have $250.00 of his own money into the transaction. So he had some money to play around with.

Repairs

The FHA appraisal confirmed my suspicions that Nate was going to have to do some work to make the home pass inspection. It even turned up a couple minor items I missed (hey I’m not perfect lol…). The bulk of the work was comprised into 2 jobs. Repainting the entire garage and replacing a cracked window in one of the bedrooms. Luckily Nate has a pretty awesome uncle with a bunch of tools sitting around. Again, no special treatment. I made him do it all. For the record, if you were my client I’d lend you my tools too.

The garage was a 2 day project and Nate determined that power washing it was the most effective way at getting all the paint chips off. It’s also good practice to clean the surface to prep for paint. The power washer took care of 95% of the chipped paint and a scraper did the rest. To save him a little trouble I lent him my spray gun too. I don’t think he’s in danger of being a professional painter any time soon but it was good enough to pass inspection.

The window was a pocket style window which is about as easy as they come to replace. The whole job took about an hour.

Closing

After repairs were completed the appraiser came back out and gave it his stamp of approval. The next week Nate ended up closing on the house and I think he got himself a pretty good deal and a home I believe will suit his needs for quite a while. All for just $659.75 of his own money. We ended up applying the surplus to principal pay down. Prior to doing this transaction I always thought you needed to have $1000 of your own money into the deal with the first time home buyer grant. It just goes to show I learn something new as well with every person I help.

Nate already has a buddy that’s agreed to move in with him and pay him rent. After it’s all said and done, he’ll be paying less for his mortgage than he was paying for rent. Something I’m sure he appreciates.

You Should Do This Too!

The reason I wrote this article is to show you that home ownership is within your grasp. If you’re like me, you probably spend way too much time on social media. One of the big things that I continue to see is how “Our” generation is screwed. First we went through the “Great Recession”. Then we couldn’t get a job with our over priced bachelors degree in “Underwater Basket Weaving”. Then house prices got out of control. Don’t let this stuff get in your head. That’s a victim mentality. If you want to own and home, there is a way to make it happen. If you have a job above minimum wage and a thousand bucks then you can do it too. Don’t have a thousand bucks? Sell some stuff. Most people have more than they ACTUALLY need.

This is a duplicatable strategy. I’ll be the first to admit. Deals like this just don’t fall out of the sky, but they are out there. If you align yourself with the right people, you can be a home owner too. And if once you start the process and run into some road blocks, keep going. Fix whatever that issue is, and keep going. Don’t give up!

-Cody & Jos-