Financing for

Question

It seems like most of the properties that would be profitable as rentals fall in price range below $50,000.  I have tried to find a lender that will loan out less than $50k, but with no luck.  Does anyone know how to get around this issue?  I've missed out on two rental properties already because of this.  Thanks!

Fred Ramos · Answer

I too had the below $50K problem starting out. So far the only bank that I know of that will write a mortgage for under 50K is Bank of America. I've had very good dealings with them thus far.  Just make sure that your credit is up to par and realize that they will not finance more than 80% or do piggy-backs.  Good luck to you. I hope this info. helps.

Account Closed · Answer

MikeOH and Rehab702 have some great points when it comes to real financing in the sub $50K market. All Cash is correct that the fees will likely be high as a percentage. The lenders need to pay the bills so they charge more. Mike's suggestions will reduce the cost.

You also have to be very careful when dealing in lower end properties. If you expect to resell and the buyers can not get financing they you have a very limited pool of possible buyers. That will delay the sale and reduce the price.

As All Cash has said in other threads offering seller financing can solve that problem.

John Corey

Richard Warren · Answer

This is an issue that I have dealt with as well.  The last 5 properties that I purchased were all under 50k.  I used a mortgage to purchase one for $40k, I put down 10% and financed $36k at 9%.  The fees totaled just under $4k or just over 10%!  It was a deal that I couldn’t pass up since the house was worth about $75k at the time and is now worth over $100k.  The other houses I used cash to buy and then got equity loans through Washington Mutual with no closing costs.  They loaned 80% of appraised value but you had to own the home for a year before you could get a loan.  I closed two such loans in July at 9% with 30 year terms.  I understand that they were changing the rules of this particular program but I’m not sure what the changes were.

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Joshua Dorkin · Answer

Cash is dead on here, as usual.  The cash generating sub $50k homes you are talking about can be great investments, but going through exhorbitant fees to get them doesn't make much sense.  Going all cash is probably your best option here.

Michael Rossi · Answer

I would suggest going to a small local bank which keeps all their loans in their porfolio.  There are a bunch of ways to get the money.

1. Buy 2 properties at once and use a blanket loan
2. Get a signature loan
3. Get a line of credit
4. Get a heloc (not my first choice)

You could also use a credit card with a low intro rate and then refinance later with another property (blanket loan).

Good Luck,

Mike

Frank Adams · Answer

I guess that's the floor for "conforming" loans now. This is the kind of loan that you either get from a "bank" or a "finance company". Both of which will likely charge you exhorbitant points and a higher than market interest rate.

It was because of this economic fact of life that caused me to switch to an "all cash" basis about 18 years ago.

I was looking at a house in the low $30's and I was going to pay out close to $5K for which I was going to get NOTHING. And end up with payments about $150/month higher than they should have been had the loan been at market interest rate.

Either that or get the money from "somone who loves you".

all cash

Financing for &lt;$50k homes?

Financing for <$50k homes?