Jan. 1, 2006 - Why do I need money if I am a Zero Down Buyer?

ZERO DOWN means NO DOWNPAYMENT. 

That means you can finance 100% of the Purchase Price, BUT there are other costs involved in the purchase of a house, besides the purchase price.  You can "stack your costs" into the transaction by including the requirement that the seller pay X$ toward closing costs in your Purchase and Sale contract on the second page of the finance contingency.  However this may later limit your ability to receive other credits from your agent or the seller ,as the lender will have limits to the total amount of credits applied at closing.  Usually 3% of the purchase price. 

Consequently if you later have inspection issues, or if you have negotiated the fee with the buyer agent, you will usually be caught in a situation where you have bargained for more credits than the lender will allow. 

You should plan to have and use at least $1,800 of your own money in any purchase transaction.  Even if you build in all of your costs, you will need to spend $1,800 before closing, even if some of that is returned after closing.

$1,000 minimum for the Earnest Money deposit plus $800 for the cost of the home inspections (paid at inspection) and the appraisal fee, often paid by you in advance of closing.  Even if the seller is paying all of your Closing Costs, that does not necessarily mean the seller can or will pay for your Prepaids.  Prepaids are amounts paid for your Hazard/Fire Insurance and your future property tax reserves and interest on your loan paid in advance.  Generally speaking the lender will allow the seller to pay for the prepaid items, but check with your lender before you make an offer.

Remember, your Earnest Money is not protected if you fail to close, due to lack of cash to cover your costs.  So make sure you know your (and have) your total cash needed to close, before you make an offer.

Many lenders will require that at least some of the money used to purchase the house come from the buyer, even if it is a nominal amount of $1,000 to $2,000.

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