Mortgage loans for low value properties

[Bill Halliday]

Let's say I want to purchase a rental property for $35,000 but the banks won't finance it with a mortgage loan because the actually loan amount is too low (especially after a 20% down payment). Most people would pay cash but I'm just starting out so I want to finance it. How would you finance it? Personal loan? Hard money?

Thanks.

[David Beard]

Just for the record, plenty of banks will make small conventional loans. I just spoke to Citi Mortgage this week, and they have no minimum at all. Better still, they don't charge higher rates or fees on small loans, as many banks do. Their total bank fees are in the range of $600-750 (note that 3rd party fees such as appraisals, settlement, and title insurance are on top of this, of course). This fee level is very reasonable in my experience. So you might give them a call at 800-248-4638. Prepare to talk to call center people initially. Cut through the crap and tell them that you want to speak to a loan officer regarding an investment property loan.

I would have concern whether a $35k property you find is in decent financeable condition. Cheap properties usually need a fair amount of work, so bear in mind that conventional lenders will not lend on rental property that is in poor condition, and they will generally not finance your rehab. As long as it is habitable and most everything works, you should be OK.

There is a Homestyle loan from Fannie Mae that permits you to finance the rehab as well, if you're looking at a property that needs more work. I don't know if Citi makes these loans, not all lenders do. You can google around to find some participating lenders if you want to try to use this loan. For example:

http://www.uptownfinancial.com/loanOptions/Featured/Fannie%20Mae%20-HomeStyle%20Renovation%20Loan/

http://www2.primelending.com/HomePathAndHomeStyleLoans