No Money Down Deals (NMD)
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What is NMD?
For most people a "no money down" deal is when a property is purchased using very little or none of your own money, a prospect that seems alien to many.
How is this possible? Put simply this is done by assembling a deal using finance from other sources, namely different lenders or investors.
I've constructed this lens to shed some light on the mysterious NMD deal and how it works. If you find the information useful please rate it so that others may find it more readily and benefit from it too.
How is this possible? Put simply this is done by assembling a deal using finance from other sources, namely different lenders or investors.
I've constructed this lens to shed some light on the mysterious NMD deal and how it works. If you find the information useful please rate it so that others may find it more readily and benefit from it too.
How to obtain an NMD
Well the good news is if you want one... you can probably get one. NMD deals are obtainable by almost everyone in some form.
It just involves sourcing the finance from somewhere else apart from your own pocket. So that's facilities such as loans, 100% Mortgages, draw down facilities, gifted deposits, loan to value lenders, re-mortgaging once you own the property... you can even use credit cards!
Believe it or not you can even get cash back on some NMD deals if the property is sourced below market value (BMV). But before we get into that let's talk about some of the aforementioned facilities for sourcing finance.
It just involves sourcing the finance from somewhere else apart from your own pocket. So that's facilities such as loans, 100% Mortgages, draw down facilities, gifted deposits, loan to value lenders, re-mortgaging once you own the property... you can even use credit cards!
Believe it or not you can even get cash back on some NMD deals if the property is sourced below market value (BMV). But before we get into that let's talk about some of the aforementioned facilities for sourcing finance.
Loans
A Loan can be obtained in two ways... either through secured or unsecured channels. A secured loan uses assets you own as security for the lender and an unsecured loan is not secured by your assets and so is usually based on proof of income. Unsurprisingly an unsecured loan is the harder of the two to obtain and often requires you to meet certain stringent criteria.
How It Works
You apply for a loan, secured or unsecured. Once the mortgage offer is confirmed the deposit and fees are paid and the property is yours without using a penny of your own money. You may have to juggle the money about to disguise where it has come from as your lender may not feel comfortable lending to you in this situation. This method of course has risks attached and you need to ensure you have sufficient cash flow to manage the loan repayments.
100% Mortgages
This is one of the easiest ways to partake in a No Money Down deal and involves a 100%+ mortgage from your mortgage lender which can cover the purchase price of the property and in some cases the other attached fees. However a 100% mortgage is usually a residential mortgage meaning you must intend to live in the property.
How It Works
Well it's fairly self-explanatory and if you are buying a home to live in yourself then it's great but what if you're looking at purchasing for investment purposes. If that's the case, and you're looking to build a portfolio starting from here then it has to be used as a stepping stone. You get your 100% mortgage, move in, sit tight for a few months and then buy again via another 100% mortgage. When you move out you convert the first property's mortgage into a buy to let or commercial mortgage. The process is thus repeated and this method has created many successful property investors. The downside of this of course is that you have to be prepared to move home every few months, which isn't for everyone.
Draw Down Mortgages
A draw down mortgage is one which allows you to have a cash release system linked to your mortgage account, which essentially allows you to release equity built up in your home when you need to.
How It Works
Well firstly you need to own a property with this facility in place but once you do it simply allows you to release the equity built up in your property which you can then use to purchase another property. This isn't common however because you need to have a large amount of equity built up in your current property.
Gifted Deposit
This facility is one whereby someone gives or pays the deposit on a property for you.
How It Works
Most commonly you see gifted deposits from owner of new developments to encourage them to sell. This usually comes in around 5% but some lenders are wary of this as they want to see commitment from the buyer.
Another method used is whereby people work together. For example, you have little or no money but a friend is willing to form a business relationship with you and front the deposit on a property. You source a deal at 25% below market value and get a 75% loan to value mortgage. Your friend fronts the deposit and you then re-mortgage at 85-90% of the new value thus releasing the instant equity acquired through purchasing at a discount and give your partner back the deposit and half of any surplus cash from the deal. A useful method if you don't have much money.
Loan To Value Mortgages
A loan to value mortgage (LTV) means that you acquire a mortgage based on the value of the property and not the asking price.
How It Works
This strategy is used in circumstances where you have found a BMV property. Say for example you source a property valued at £150,000 at 20% BMV. That's a purchase price of £120,000. Say you get a 90% LTV mortgage to fund this, that's equivalent to £135,000. This covers the purchase price and leaves you with surplus cash. This method for implementing NMD deals only really works when you source property BMV, ideally 20-25% BMV.
Re-Mortgaging
This simply involves re-mortgaging a property you have bought that is worth more than you have paid for it.
How It Works
The method really only works when you source property BMV or that has potential to be renovated. With a BMV property, at the point where you have almost completed on the deal you run another mortgage application alongside the original based on you owning the property and its true market value thus releasing the instant equity you created by buying BMV and reimbursing the deposit and any fees plus, depending on the discount you received, leaving you with a surplus of cash.
With a renovation property you would make the application just as the work is being completed (this of course prevents instant reimbursement of deposit and fees until renovations have been made).
This method requires that you have the money in the first place and so lends itself to a closed bridging purchase system, whereby you get a bridging loan to pay your deposit and fees and then re-mortgage, pay off the loan plus a small fee, usually 1%, leaving you with ownership of the property and any surplus cash.
How It Works
You apply for a loan, secured or unsecured. Once the mortgage offer is confirmed the deposit and fees are paid and the property is yours without using a penny of your own money. You may have to juggle the money about to disguise where it has come from as your lender may not feel comfortable lending to you in this situation. This method of course has risks attached and you need to ensure you have sufficient cash flow to manage the loan repayments.
100% Mortgages
This is one of the easiest ways to partake in a No Money Down deal and involves a 100%+ mortgage from your mortgage lender which can cover the purchase price of the property and in some cases the other attached fees. However a 100% mortgage is usually a residential mortgage meaning you must intend to live in the property.
How It Works
Well it's fairly self-explanatory and if you are buying a home to live in yourself then it's great but what if you're looking at purchasing for investment purposes. If that's the case, and you're looking to build a portfolio starting from here then it has to be used as a stepping stone. You get your 100% mortgage, move in, sit tight for a few months and then buy again via another 100% mortgage. When you move out you convert the first property's mortgage into a buy to let or commercial mortgage. The process is thus repeated and this method has created many successful property investors. The downside of this of course is that you have to be prepared to move home every few months, which isn't for everyone.
Draw Down Mortgages
A draw down mortgage is one which allows you to have a cash release system linked to your mortgage account, which essentially allows you to release equity built up in your home when you need to.
How It Works
Well firstly you need to own a property with this facility in place but once you do it simply allows you to release the equity built up in your property which you can then use to purchase another property. This isn't common however because you need to have a large amount of equity built up in your current property.
Gifted Deposit
This facility is one whereby someone gives or pays the deposit on a property for you.
How It Works
Most commonly you see gifted deposits from owner of new developments to encourage them to sell. This usually comes in around 5% but some lenders are wary of this as they want to see commitment from the buyer.
Another method used is whereby people work together. For example, you have little or no money but a friend is willing to form a business relationship with you and front the deposit on a property. You source a deal at 25% below market value and get a 75% loan to value mortgage. Your friend fronts the deposit and you then re-mortgage at 85-90% of the new value thus releasing the instant equity acquired through purchasing at a discount and give your partner back the deposit and half of any surplus cash from the deal. A useful method if you don't have much money.
Loan To Value Mortgages
A loan to value mortgage (LTV) means that you acquire a mortgage based on the value of the property and not the asking price.
How It Works
This strategy is used in circumstances where you have found a BMV property. Say for example you source a property valued at £150,000 at 20% BMV. That's a purchase price of £120,000. Say you get a 90% LTV mortgage to fund this, that's equivalent to £135,000. This covers the purchase price and leaves you with surplus cash. This method for implementing NMD deals only really works when you source property BMV, ideally 20-25% BMV.
Re-Mortgaging
This simply involves re-mortgaging a property you have bought that is worth more than you have paid for it.
How It Works
The method really only works when you source property BMV or that has potential to be renovated. With a BMV property, at the point where you have almost completed on the deal you run another mortgage application alongside the original based on you owning the property and its true market value thus releasing the instant equity you created by buying BMV and reimbursing the deposit and any fees plus, depending on the discount you received, leaving you with a surplus of cash.
With a renovation property you would make the application just as the work is being completed (this of course prevents instant reimbursement of deposit and fees until renovations have been made).
This method requires that you have the money in the first place and so lends itself to a closed bridging purchase system, whereby you get a bridging loan to pay your deposit and fees and then re-mortgage, pay off the loan plus a small fee, usually 1%, leaving you with ownership of the property and any surplus cash.
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