Hey, want a cool way to buy property with no money down and no closing costs? Even for an investment property? Did you think that such loans were long gone after the housing downturn? Well, they’re not. At least not for a specific type of no money down loan. Meet SAM and PAM.
SAM stands for secured asset mortgage and PAM stands for pledged asset mortgage and they both work the very same way. A SAM or PAM allows a buyer to pledge certain assets as collateral to the lender in order to finance real estate. How do they work?
Say a buyer sees a property he wants to buy for $500,000. The buyer also has a stock portfolio worth $200,000 and CDs with a $50,000 current valuation. A SAM lender will finance 80 percent of the $500,000 sales price, or $400,000 and the buyer then pledges as collateral the remaining 20 percent of the sales price, or $100,000.
This pledge is a form of a legal assignment of ownership from the buyer to the lender. Should the buyer default on the $400,000 loan, the lender can not only foreclose on the property but will also take full possession of the pledged asset. In this example, the lender gets the property as well as $100,000 in stock the borrower previously pledged.
Such loans have some quirks, the most noticeable one is a type of margin call. The pledged asset must always maintain the original value pledged. For instance, if the $100,000 pledged was in the form of Apple shares and the price of Apple stock dropped 20 percent, the PAM lender will require the borrower to provide additional assets to make up for the lost stock value.
PAM and SAM loans are only available through securities dealers that manage stock investments for their clients and can have slightly different requirements for this type of loan. But for those with such assets available, it is indeed a way to finance any type of real estate with no money down.