My Desired House is Too Cheap for a Loan?!

[Fred Tracy]

Hello all,

Just got done talking to a mortgage banker about getting a loan for a house. I'm here in Oklahoma and found a fixer-upper for $30k. According to my banker, it's not a good idea to get a loan for anything under $50k because the costs involved means that you'll pay a bunch of money (around 3k) for a loan that is not all that big.

If this is the case, how do people typically buy properties that cost less than 50k? I could probably do a cash offer, but I was hoping to leverage my money with the loan.

Is cash how all of you guys tend to buy properties worth such small amounts? Many properties I'm looking at here are worth 30k to 60k and I'm doing 20% down so that would make the loans all less than 50k total.

Thanks for any advice!

[horsepoor]

Maybe talk to a credit union and see if you can get a personal loan at a good rate, or perhaps you can pay cash and then get a HELOC?

[usmarine1975]

Check with another mortgage broker or go directly to the bank or Credit Union.  You should be able to get the loan.  They are just not that common anymore.  My last purchase was 35k took some time but it went through.  We also did a 15 year mortgage.  Good rate and fee's were not that bad.  We dealt with Well's Fargo.

The person we dealt with was helpful but we could tell they kind of chuckled at our loan amount.  Interesting thought my Father's first home cost him $17,000 to purchase.

[Theadyn]

*waves from a fellow Oklahoman*   Will be watching this thread, as there are some good deals to be had here.  G'luck!

[dandarc]

Ask a different bank - sure they don't all really want to deal with small mortgages, but usually that just means a somewhat higher interest rate.  No idea what the situation is in Oklahoma, but we just bought a house in Florida for 125K (100K loan) and the portion of closing costs that could be attributed to the mortgage itself was at most $1800 (assuming if buying cash you would skip the appraisal and surveys) - everything else was for insurance / escrow / taxes & fees and the like, that you get to pay whether you have a mortgage or not.  So I'd question that $3K closing costs figure on a $25K mortgage.

[NathanP]

Another alternative is to borrow from your 401k in order to complete the purchase. You then could replace the money with a home equity loan.

Not sure if you are at a point in your life of having a sizable 401k balance or if your employer will allow 401k loans.

[orbix]

I'll second the suggestions to talk to a local credit union. In our case, a credit union beat the crap out of the other options on fees, and they also allow you to do the taxes and insurance yourself rather than via an escrow account if you want. Pretty sure this isn't unique to our credit union, either...

[Poorman]

Bankrate.com has a search feature that lets you select the loan amount.  I was recently running a search for a $40k mortgage and two credit unions came up in my area (inland desert properties).  You might also get some community banks that show up.  Since credit unions are non-profits, they are more willing to do these types of loans to gain new membership.

[Bob W]

Deal with a locally owned "hometown" bank.  Ours around here in Missouri seem more receptive and they often shelve their loans.   The interest rates might be higher but the up front rates are lower.   

Funny,  but I asked them about when the appraiser would be out and they said "oh, we don't hire appraisers, "we just go out ourselves and look at the house."   Meaning since we are taking all the risk and shelving the loan we know what the heck we are doing.

[waltworks]

Assuming you already own some property, HELOC (probably best if it's your primary) and pay cash for the investment property. You should be able to get a no-fee HELOC somewhere pretty easily.

-W

[Fred Tracy]

Hey all, thanks for the replies!

So.. I went to look at the $30k house. Terrible shape.. which is okay, but the neighborhood itself was scary/run down. I want a run-down house in a decent neighborhood.. so going to pass on that.

It seems like I have two options - HELOC or credit union. I think I will try both ideas. Thank you to everyone who replied.. I will check back and report on how it went.

Oh and yes I do have a primary home, this will be an investment. I suppose I could HELOC on the primary and get $15k or so out of it if need be. Couldn't I then buy the investment home, then HELOC it and put money back on my primary? Never done a HELOC before so maybe that's not how it works.. looks like I have research to do.

[usmarine1975]

My only caution with using your primary to leverage a rental property would be to make sure you can cover it if something were to go drastically wrong with the rental.  But I imagine you already know that.

[Rural]

Don't forget to check small local banks in addition to credit unions. Ours didn't blink at $39k and beat Navy Federal's fees. There were other issues, but they were really of the "fluke"variety.

[Fred Tracy]

Don't forget to check small local banks in addition to credit unions. Ours didn't blink at $39k and beat Navy Federal's fees. There were other issues, but they were really of the "fluke"variety.

Good point. I actually bank at a smaller bank so it makes sense to check there. I just went with the larger bank since I had my other mortgage with them. Looks like I need to schedule another meeting with a loan officer.

[mooreprop]

Definitely check with small local banks for more flexibility.  Also, you could apply for a blanket mortgage if you want to buy more than one rental.  We typically put the house(s) on our HELOC, do the fix-up, then apply for a loan.  This week, I got a mortgage for $75,000 which covered the cost of 3 houses.  Two houses appraised high enough to satisfy the bank, so we minimized our closing costs and have one house "free and clear" out of the deal.

[jmoney]

In Ohio the only HELOC there is applies to owner occupied houses. I've been looking for about two years for a HELOC on non owner occupied properties but no luck. I've heard rumors there is one bank in PA that does this but that's no help to the OK poster.

The best financing you can get usually comes from a motivated seller, not from a bank. Find the same distressed home owned by a tired landlord or other distressed seller. You can take over financing but since this is your first couple deals it sounds like find a seller with a free and clear paid off house. Ask for terms and you may get an ok one out of 10 times.

Here is why I say ask the seller:
- I've gotten 0% interest before. What bank does that?
- Sellers don't ask you for points. They ask for a down payment.
- They would never ask for an expensive appraisal for their own house.
- You can tell them how much you can put down. Depending on their situation this can be a lot less than normal.
- You avoid hundreds of pages of paper work that wastes your time.
- You avoid stupid underwriting guidelines that waste everyone's time. The banks have gotten too picky and investor loans are tough.

I was able to get two measly cash out loans for $60 k each after begging and ankle biting for six months. The underwriting always found some little detail they didn't like. Interest rate was 4.875%, $5 k each closing costs/points.

I was doing a cash out but none the less I lost $6 k in fees from the $5 k closing costs and $900 (yes 900) appraisal cost. That's 10% off the top...

Then if you're really lucky the seller will call you one day and ask you for an early pay off. And you can ask him at what discount? No bank would ever short a performing loan.