Where can real estate investors and home buyers find financing for small mortgage amounts?
Most don’t anticipate a smaller loan amount to be a much bigger issue when it comes to financing a property, but it often is. Many have been caught off guard after signing a contract or paying cash for a property with the intent of refinancing. This can also make it really difficult for sellers and real estate agents to move property.
Banks and other mortgage lenders love big loans. Big loans can mean big commissions for mortgage loan officers. After all, would you rather spend the same amount of time and energy to make 3% on a $1M million dollar loan or a $10k loan? This also impacts efficiency and profitability for lenders. Many simply won’t touch small balance loans, even if they can make them. They just don’t want the hassle. This can often apply to anything under $100k. Some lenders have lower minimum loan amounts around $75k, or a little lower, but rarely will they enjoy doing them. That can be a real pain as a home buyer or real estate investor when you are finding a ton of juicy looking deals under $100k. If that $7,000 property is more hassle and ties up more cash than a $170,000 property, most just skip to the higher end stuff. Still, there are lots of cheap house deals out there. So how do you finance them? Or how do you help clients finance them?
Credit Cards & Online Banking
In some cases, houses can just be put on a credit card, a prepaid card, or short term advance from an online banking or payment provider. PayPal and Amex might be two to check out. The interest may not be cheap, or you may not have long to pay it back, but you may be able to act fast, and avoid other typical mortgage borrowing costs. If you just need a little cash for a flipping houses fast, it might be worth exploring these as an option.
Owner financing should be a pretty obvious option. If you are looking for an inexpensive property, try looking for sellers that will finance. If you are selling on the low end, consider maximizing your return, and the speed of sale by offering financing.
Secured and unsecured personal loans may also be a less stressful and less time consuming choice. What you get may depend on how much you have on deposit, your credit score, and current eagerness of lenders to put money to work, as well as relationships, but you may be surprised at what you get. Fixed loans and personal lines of credit may be an option, and they may come with low costs.
Commercial Real Estate Lenders
The lines between types of lenders has really blurred, as new regulations have pushed more lenders to focus on business lending. However, that doesn’t mean they won’t lend on residential homes. Some offer blanket mortgages or lines of credit and short term loans to investors. This may help finance a whole portfolio of less expensive properties and repairs.
Private Money Lenders
Private lenders may be happier to make smaller mortgage loans. They don’t have the overhead and labor costs big companies do. They may even prefer starting out with small amounts while they build trust and a relationship with you. You may run into some at local real estate investment groups. Others may be organized as local hard money lenders. Then there are crowdfunding and peer to peer lending websites that can help both real estate investors and individual homebuyers finance a home from a variety of private individuals.
Credit Unions & Local Banks
If you haven’t tried them yet, and you have reasonable credit check out local banks or credit unions. They can be a lot more flexible in what they can loan, and are always looking to draw new deposit accounts and customers.
Obtaining small balance mortgage loans can be a lot harder than most anticipate, but there are a lot of options to explore. Cheap real estate isn’t always a deal, but it is often undervalued and overlooked due to the financing challenge. Those that can find good finance partners in this arena can find great profit margins, and also buy houses for a lot less than others. Will you give it a shot? Have you stumbled on a lender that loves making small balance mortgage loans?