How To Buy a Home in Portland Oregon With Nothing Down

Posted on: June 28, 2007

Photograph by Sarah Harmon of Hood Photography

Many first time buyers are concerned with saving enough money to get into a home. In most instances, the down payment is not the problem. Many lenders are willing to make loans for the full purchase price (referred to as 100% financing) if a buyer’s credit history is established and clean. With a high credit score, the only significant obstacle can be the closing costs. Closing costs can be paid by the seller as a concession to the sale. In today’s market, most sellers are willing to participate in order to generate a sale. Even in a stronger market, closing costs can be added to the purchase price and effectively “financed” by the buyers. The appraisal of the property must reflect the price being paid, but most transactions close.

On occasion, I talk to people who want to save up for a sizable down payment. They generally tell me that they want their payments to be lower. Ironically, in a market with even a slight appreciation rate, the buyers are better off purchasing earlier and making the larger payments. If an entry level home is valued at $200,000 and the inflation rate is only 6%, the home will go up in value at $1,000 per month. If you are saving up 5% for a down payment at this same $1000 per month, you are pretty much breaking even. That is, you are saving as fast as the price is going up. Obviously, you will have to save 2-3 times as much to get ahead. Sadly, if the object is to make a big difference in your payment, you may never achieve home ownership.

I think a better strategy is to apply the money you intend to save to your secondary debt. Often, our personal debt carries a higher rate of interest and is on a shorter term (amortization) than mortgage debt. To make matters worse, it is usually not deductible from our gross income and therefore of no help when tax time rolls around. Paying off vehicles and credit cards frees up the resources to make a higher house payment. Also, paying bills on time and the resulting debt reduction raises our credit scores and can result in a better loan.

An interesting observation is that not having any debt at all can work against the potential home buyer. In some cultures, people are distrustful of institutions and are hesitant to borrow. My friends in the lending industry have a saying, “No credit is as bad as bad credit.” Without established credit, it will be difficult to buy a home even with a substantial down payment. Buyers will want to take out a credit card from one of the big retailers and make some purchases months before an offer to buy a home is tendered.

If buyers have been scrimping and saving for the down payment, and have not been inclined to open a savings account, the source of your down payment will come under scrutiny. Again, some folks prefer to stuff their cash under the mattress rather than depositing it at the local credit union. Nothing gets a lender’s attention faster than a large amount of money magically appearing at escrow when closing comes around. Like it or not, the source of the down payment has to be established. If a relative has provided the resources for the down payment, a letter will have to accompany the check explaining that the money is a gift with no expectation of repayment. In the lending profession, this is referred to as a “gift letter.”

I heard a statistic recently. We supposedly have 20 million people living in American today who could own their own homes and who are unaware of this. Home ownership is one of the great benefits of living in this country. There are economic, social and psychological considerations that contribute to the welfare and stability of our communities. Reliance upon a down payment should not stand in the way of living the dream.

Article written by Don McCredie, G.R.I., CRS; he is the owner of portlandrealestate.com, a Life Member of the Million Dollar Club, and a past REALTOR of the Year for the Portland Metropolitan Association of REALTORS. Currently, he serves as the Broker/Owner of EXIT Acclaim Realty and can be reached at 1-800-203-9898.