Low Mortgage Amount Source?

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I’m looking to invest in a low cost real estate investment property. There are a great deal of properties out there, but I can’t seem to find a lender that will loan out 50K in a traditional 30 year fixed mortgage. There are a great deal of properties being sold at these prices. What am I missing?

  1. Reply
    My Take on It
    May 16, 2011 at 5:14 am

    You are missing the fact that it isn’t profitable enough for a bank to underwrite a 50k loan. LOL

  2. Reply
    Spock (rhp)
    May 16, 2011 at 5:49 am

    first, investment loans aren’t made for 30 years — 25 was the old max and in this market they’re going to be wanting something tighter … maybe full amortization over 15 with repegging the interest rate every five years.

    next, all the banks are scared that RE will keep going down. That means they aren’t going to be doing any loans for RE investment with less than 30%, maybe more, investor cash in the property.

    you also have to understand that the profit margins on a smaller loan [and 50k is small for a mortgage] are poor and the loan can’t be sold to someone else. that means they have to hold it themselves — and thus fixed rates won’t be offered. [banks don’t have any deposits with longer than 5 year fixed interest costs and not many of those.]

    the exception is when you buy the property from the bank’s OREO inventory. They need to move houses they’ve foreclosed on and might do a deal that wouldn’t otherwise get done just to move a place they’ve owned for 8 or 14 months. There is no harm in asking.

  3. Reply
    May 16, 2011 at 6:13 am

    I don’t think you are missing anything. I just checked our lender list and found two that will do a conventional 30 year fixed at that price with 15% down and three that will do it with 20% down. All will require you to have at least 6 months payments in reserve. You will pay at least 2 points in addition to regular closing costs but lenders will do them.

    Some lenders may not want to do them since they can be a lot of work for little reward. The last time I did a $ 35K loan I was paid nothing because lending laws have additional restrictions if the closing costs exceed 8% of the loan amount. I did it anyway because my borrower was a past client that had borrowed from me a few times before. I am sure most service providers aren’t thrilled about the opportunity to work for free. When you find someone to help you with this, make sure you send him some referrals.

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