@gobankingrates @mybanktracker I challenge you both to show banks & rates offering mortgage loans of $50K and less! Under served market!
Underserved, indeed. After some research on a few lenders and a call to a Coldwell Banker’s mortgage representative (who promised an agent would follow up with me within 24 hours, but never did), I was left without any clear answers, but more determined than ever to find them.
Who Needs Such Small Home Loans Anyway?
This was my first thought. Spending most of my life within the expansive, densely populated and inflated housing market that is Los Angeles County — namely, the South Bay’s “Beach Cities” — I often forget that half-million dollar homes are not the norm throughout most of the country. According to Trulia.com, the median sales price for a single-family home in Los Angeles today is $551, 000.
A few hours away in the more isolated community of Barstow, however, the median sales price is just $77, 500.
Homeowners living in small towns or depressed local economies, where property values are quite low, don’t need to borrow hundreds of thousands of dollars to buy property — they only need as much as someone looking to buy a higher-end new car.
Then there are those homeowners who might have secured their loans 15 or 25 years ago, have paid down most of the principal balance on their mortgages, yet want to take advantage of today’s amazing mortgage rates by refinancing.
Unfortunately, whether you want to borrow or refinance a mortgage of just $50, 000 or less, few lenders are willing to approve it.
Why Lenders Don’t Like Providing Small Mortgage Loans
So why is it so difficult to find a lender offering small mortgage loans under $50, 000 in the first place? Generally, it’s just not worth it to the bank (or the borrower, in most cases).
That’s because whether your mortgage is for $50k or $500k, loan origination and servicing costs are about the same. A loan of several hundred thousand dollars over a couple of decades provides the lender a nice profit from interest, while a much smaller loan requiring the same amount of money and effort to fund it yields significantly less. Often, it’s not cost-effective for a bank to provide such a small home loan.
If lenders lose money providing extremely small home loans, they are certainly not going to go out of their way to advertise their availability, much less the higher rates associated with these loans. That does not mean, however, that there are no lenders out there who will provide one.
How to Get a Small Home Loan and Alternatives for When You Can’t
Just because these small home loans are uncommon doesn’t necessarily mean they don’t exist. If you need financing for a home that doesn’t cost very much, you might be able to get it if you’re willing to put in the work.
Reach Out to Local Banks and Credit Unions
Don’t expect to walk into a Bank of America or Chase mortgage office and be approved for a $50k mortgage. To find small home loans, you have to go to small institutions.
Your first stop should be your local bank; an existing relationship with a community bank or membership with a credit union is a great in when negotiating a small home loan. Financial institutions are much more willing to work with customers who have proven their loyalty and responsibility with money.
If you don’t bank with a community institution, however, or you do, but are rejected for a loan, you should continue to meet with representatives from local banks and credit unions near you and have them review your financial situation (just don’t let them all run your credit!) to find out if a small mortgage loan is a possibility. Keep in mind, it could take some time before finding a lender who is willing to work with you.
What to Do When No One Will Give You a Small Mortgage Loan
If you’ve tried contacting local lenders without any luck, it’s time to find alternative ways of funding your home purchase.
Rather than obtaining a mortgage loan, you can instead finance your home purchase using a personal loan. There are many types of personal loans, ranging from secured loans from major banks to dangerous, extremely high-interest payday loans. Obviously, if you decide on a personal loan, it’s important that the terms are manageable and the interest rate is affordable.
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A stated income loan is a mortgage where the lender does not verify the borrower's income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. These loans are sometimes called liar loans or liars' loans (often...
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Book (U.S. Govt. Print. Off.)
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