Guest Post by Jonah Trenton
Many people today are making the decision to live in areas with a lower cost of living and to purchase lower priced homes. Affordable housing is commonly found in more rural areas, but many urban and suburban areas have home prices under $100,000 today. If you have found the perfect home that fits your needs and your budget, but that is priced under $100,000, you may be having trouble finding a loan program that fits your needs. A low loan amount can be a challenge, but with effort most home buyers are able to find the financing they need to purchase their home.
FHA loan limits will vary by location, but in some cases loan amounts are available well under $100,000. For instance, the minimum loan amount for FHA loans in Florida is $40,000 with up to 98.75% LTV if the loan amount is under $50,000. Each location will have its own minimum loan amounts and maximum LTV thresholds based on property values in the area. So it is important to take time to research FHA guidelines in your area or to work with a mortgage broker familiar with FHA loans.
Many banks will not consider low loan amount loans. These loans are considered riskier than larger loans because the collateral has a lower value than larger mortgage loans. These loans are also less profitable for banks. This is because many banks charge loan fees as a percentage of the loan amount. A 2% fee on a $60,000 loan is considerably less than a 2% fee on a $300,000 loan. Yet while bank loans may be difficult to obtain, some banks do offer lower loan amount mortgages to borrowers. In many cases, however, banks will want to see a strong borrower with higher credit scores. They may require a higher down payment as well, as this can minimize their risk associated with financing the purchase or refinance of the property. Further, mortgage rates may be higher.
Many people do want to obtain a home mortgage when possible, as a real estate mortgage offers lower rates and a longer term. Further, the interest on a home mortgage is tax deductible. However, if you are looking for a very low loan amount, it may be possible and even beneficial to obtain an unsecured loan for your needs. Unsecured loans are available to good to excellent credit borrowers. In some cases, unsecured loan amounts may exceed $50,000. Further, while the term will be shorter, if you can manage the higher payments associated with a shorter term, you can enjoy the benefits of having your home paid off in just a few years. Further, an unsecured loan will not require an appraisal or other associated reports that are typical with a real estate purchase, and the overall time to close on the loan is greatly reduced.
There are several options available for home buyers who are considering purchasing a smaller property with a lower value. In many cases, a home buyer will be able to find a real estate mortgage that fits their needs. However, if a real estate mortgage is not able to be found, an unsecured loan may be worth considering as well.