How Much Do I Need For A Down Payment – First Time Home Buyer
Kris Krohn here with Limitless TV. And today were going to be talking about down payments on property. How much money do you really need for a down payment? And are their down payments where you don’t actually need a down payment? That’s all coming your way, right now. Some of you have been reaching out on our site and have been asking, all right, how much do I really need for a down payment? Today’s video I really want to dive in to how simple and basic this is. I’m going to be sharing with you three different types of down payments. The first type of down payment that you’re going to need if your going to do real estate would be for a primary residence. Now you can and investor, and I always encourage investors to look at a primary residence, or the home they are going to buy, for them to live in. I’m going to encourage you to always buy that home as a house, as an investment. So that it really can play on both sides. And I think you’ll see shortly why I do that. Because, in our country, if you are buying a home for the first time. And I want to be clear, there are a lot of programs out there that are called first time home buyer, that doesn’t mean you’ve never bought a house before. I really actually should just translate to mean, I’m ready to buy another home to live in. And right now if your going to buy a primary residence. Something just for you. There are a lot of programs out there that will allow you to put in 3%, 5%, and there are programs after programs after programs, federally sponsored programs. And your loan officers, the people that are going to do the lending, and lining this up. They are knowledgeable on this. Now not all lenders are created equal. Some of them are more knowledgeable on these programs than others. But in general, the average lender is very familiar with these type of loans. Now what’s great about that is I could buy a home with a lot of equity, that would make a really prime investment property. But think about it, I’ve got a home that I could buy for $100K, that is worth $150K, and guess what? 3% on $100K is $3000. I walk into $50,000 of equity for $3000 out of pocket. That’s essentially what happened on my first house. And I got hooked. That was more than double what I made in an entire year. And I’m like… Man! That is so smart. 2 years later I bought another home and moved again, because I wanted that 3% down payment, right? So that’s primary residence. The down payment, however, on what’s called a non owner occupied. Which basically means, a home I want to buy as an investor, and I’m not planning on living in. Your going to, on a non owner, or I’m just going to go ahead and write here, on an investment, the standard is 20%. And you’ll find programs out there where lenders will say, well if you put 25% or 30% down we’ll really bump your rate down another point, or half a percentage. I don’t participate in those, because I would rather take that money. I don’t care about a half of a percent when I’m making all that money in real estate. I’d rather take that extra money and put it where? In another deal right? You will find from time to time, depending on where we are at in the economy, before we ever hit a collapse, there’s always these stupid 0%, 5%, 10% lending programs. And these are the banks that often go out of business and get spanked, right? Like Washington Mutual went down hard, in the last economic crash. And I’ve been banking with them since I was 16 years old. And so, an investment property, even if they’ll allow you to put down 10%, I still always put 20% down. And I just want to share with you why for a second. When I purchase a house, and let’s say it has a value of $100,000, and let’s say that I’m able to purchase this home for $70,000. Then if I… I’ve got a good equity position here, 30%, in fact that’s really significant. And if that gap right there, because I’ve hunted some good pirate treasure down. Is going to equate to a larger cash flow. Why? Well think about it. If I were to buy this $100,000 house for 100 grand, them I’m going to have a higher mortgage. A higher mortgage means less cash flow. So for example. If I’m able to rent this home for $800 a month. And my mortgage, if I just bought it, and let’s just say at $100,000, and I just put the minimum 3% down or something like that, I might have a mortgage of $700. And a $700 mortgage and an $800 rent only leaves $100 left over. It’s not a great cash flow. But if I buy it with this equity right here. All the sudden $700 can turn into $500, and then check it out. Now I have a $300 delta, a difference. $300 of cash flow. Now if I put 20% down on top of this $70,000, and let’s just say then that what I’m going to owe is ultimately going to be $55,000, guess what I just did. I just lowered my payment again, and I made my cash flow even steeper. So understand this concept of 20% down. There is a reason I put 20% instead of 10%. Some will say “but Kris, if I put 10% down, then my 20% will go into 2 homes instead of one. Don’t you love that?” And it all comes down to a definition of risk. I have a lot of friends that lost homes, that played the market that way, in the last crash, and I’m telling you, it’s going to happen again. And it’s actually no very far away. This isn’t conspiracy theory, doom and gloom. This is a 3000 year old cycle called the K wave Kondratiev cycle. And every 20 years, real estate must correct. In one of my other videos I share with you why. The point is I’m always going to put 20% down. It creates a safety margin, as Warren Buffett put’s it. 10% puts down a less safety margin. 20%… look at all my cash flow right now. My house now, it’s worth $100K, I owe $55K. It’s almost half paid off. So I’m always going to find a home with a big chunk of equity. I’m always going to put 20% down. And now all of the sudden, if the market corrects down, guess what I have? I’ve got a buffer, right? I’ve got a cushion. And I’ve got my cash flow in the mean time. So, I just want to throw that little bonus material in before I show you, the 3rd way that you fund your down payments. One is with the banks and government with these 3% to 5% loans, if your going to be doing a primary residence to live in. 20% if it’s an investment property. And then, I’m going to share with you my favorite way of funding these with nothing. Now if you want to know how much money I put down when I buy real estate, on 99% of the deals that I do, I put down nothing. Because I believe in this no money down real estate thing. Because I’ll always bring partners to the table. If you’ve got to wait to have the money yourself, then guess what the problem is? The problem is that, you’re going to have to be saving for a very long time, and your taking the, never going to get there road, in most circumstances. I mean even if you live within your means, and your saving a couple thousand dollars a month, you’ve got to wait years between doing real estate transactions. And then it will eventually snow ball and get where you want to go. But the shortcut is to do real estate now through a partner. In fact, one of the reasons why people will respond to the form below this video, and say “hey Kris, I want to partner with your team.” Is because I’m going to teach you how to buy all the real estate you want, without ever bringing money to the table. It’s called deal making. And so, while it’s 5% or 3% down payments on a primary residence, 20% on investment projects. For me it’s always a nothing down. In fact right now I’m doing a huge project, and I’m not putting a penny of my own money into it, because no money down is one of the coolest forms of down payment. I do have to give up, generally, half of the profits with other individuals. But you know what? Making half the money without having to put any money in, ends up turning into an infinite ROI. So it works really, really, really, really really, really well! I hope you’ve enjoyed today’s video. Be sure to subscribe. I want to notify you, and let you know about all the other exciting topics that we’re shooting videos on, that are made just for you.