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How (and Where) to Find Small Mortgage Loans

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Small mortgage loans, which may have a dollar amount less than $100,000 or even as low as $70,000 depending on who you ask, can be hard to come by. Still, it’s possible to qualify for one.

Once you first understand why it can be difficult to secure a small loan, you’ll have a better handle on where to look and how to qualify for one.

What is a small mortgage loan?

The dollar amounts tied to small mortgage loans can differ by mortgage lender and other housing-related entities. For example, the Urban Institute, a social and economic policy research nonprofit, defines a small home loan as an amount up to $70,000.

A small mortgage could also be anything under $100,000, said Michael Becker, a branch manager at Sierra Pacific Mortgage in Lutherville, Md.

There’s a limited supply of homes to match small mortgage loan amounts. Properties priced under $100,000 account for just 7% of the homes purchased, according to data from the National Association of Realtors.

What’s the minimum mortgage amount you can borrow?

Many mortgage lenders have a minimum mortgage amount, which you can call and ask about. Below, we’ve compiled a list of some lenders and the smallest loan amount each of them offers.

Lender  Minimum Mortgage Amount 
Alliant Credit Union  $50,000
Connexus Credit Union $50,000
Navy Federal Credit Union $10,000
PenFed Credit Union $50,000
Quicken Loans  $25,000

Small mortgage loan requirements

Small home loan lenders typically require borrowers to meet the same minimum mortgage requirements as they would for a larger loan amount, said Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich.

If you’re getting a conventional loan, for example, some of the main requirements include:

  • A 620 credit score or higher.
  • A 3% down payment or higher.
  • A 45% debt-to-income ratio or lower.
  • Proof of steady employment and income for the last two years.
  • Private mortgage insurance for a down payment less than 20%.

But one major difference between large and small mortgage loans is the amount of money you’d be expected to bring to closing.

“Obviously, if you’re borrowing a smaller amount, your down payment is (lower) because your purchase price or your loan amount is (lower),” Leyrer said.

Tips on how to find a small mortgage loan

It can be difficult to find and qualify for a small mortgage loan for a few reasons. For one, buyers financing a home purchase may face competition from real estate investors who can offer all cash to a seller and get to the closing table quicker, according to the Urban Institute.

Another reason: Lenders usually receive a lower return on investment from smaller loans.

“Lenders and loan officers get paid (and) how they’re paid is via interest payments,” Becker said. “So if you have a smaller loan amount, there’s going to be less interest. It takes as much work to close a $100,000 loan as it does a $400,000 loan, and to service it.”

Here are some tips to help you find small home loan lenders:

  • Research local mortgage lenders. Seek out community banks, credit unions and private lenders by asking for recommendations from family members, friends or colleagues. Don’t forget to check lender reviews to ensure the lender you choose is in good standing and doesn’t have a history of complaints.
  • Compare multiple quotes. Compare the mortgage offers of at least three to five lenders, including the loan terms, interest rates and estimated fees. Ask questions to get a feel for each lender.
  • Find a real estate agent. Talk to a few real estate agents before committing to working with anyone, but focus on finding an agent experienced with lower-priced homes who can help you narrow down your search to the right areas.

Pros and cons of small mortgage loans

Keep the following benefits and drawbacks in mind if you’re considering a small mortgage loan to buy a less-expensive home.

Pros

  • Your down payment is lower. Getting a small mortgage loan means you’ll pay a lower minimum down payment. For example, if you buy a $90,000 home and qualify for a conventional mortgage, 3% down would be $2,700. By contrast, 3% down on a $200,000 home is $6,000.
  • Your monthly payments are lower. You’ll borrow less with a small mortgage loan. That means your monthly mortgage payments will also be lower.
  • You can pay off your mortgage faster. If you have some extra disposable income to dedicate to your payments each month, you can pay off your mortgage faster than your repayment term calls for.

Cons

  • Your closing costs may be higher than expected. Your closing costs may be higher, as a percentage of your loan amount, because lenders have a minimum fee they charge no matter the size of the loan.
  • You’ll have fewer for-sale homes to choose from. As previously mentioned, lower-priced homes are harder to find, especially when you’re competing with real estate investors who can afford to offer cash up front.
  • You may have a higher mortgage rate. Because lenders won’t make as much money on a small mortgage loan, they typically charge a higher mortgage rate to compensate for the limited profit.
 

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