Buying a home that is too low priced to qualify for a mortgage

[Jay Garrison]

Hi,

I am interested in buying a two flat in my area for rehab, and then I will live in one unit and rent out the other.  I understand now that such a low priced property isn't profitable for a traditional bank or mortgage broker. 

My friend's mom has a few properties she rents out, and she suggested that I consider a personal loan/line of credit. I am very open to this, but not sure: (1) where to go   (2) why they would let me use a loan to buy a home for a price that wouldn't meet mortgage standards. Are online lenders okay? I feel a bit queasy about going to an online lender, but I have never had a mortgage before, so I am queasy about this whole thing, to be honest.

I have $5k in savings, my car is paid for, and my credit score is decent. I have a solid job, so I think income shouldn't be a problem. The places I am considering buying are all undr $30K, and all need substantial repairs, up to $30 in repairs.  What are my alternatives? I know that one alternative is to spend more, enough to qualify for a traditional mortgage. I would like to avoid that because I would like to avoid early payment penalties, and I have my heart set on one of several properties for personal reasons.  

Thanks in advance!

[Mike Cumbie]

Hi @Jay Garrison

TO answer your second question:

(2) why they would let me use a loan to buy a home for a price that wouldn't meet mortgage standards.?

With a personal loan you can buy "baseball cards/jeans/car audio equipment/cell phones/stamps/Chuck E Cheese game tokens" Essentially you have 30K in cash that you are paying monthly for. It is the most preferred method for most sellers to see an offer come in as. So one strategy is to take out a personal loan for 30K, purchase said residence at a considerable discount. Fix said property up enough that it will qualify for a mortgage. Once there put a mortgage on it to pull the money back out and pay off the high cost personal loan and cards you used to get it to that point.

Just a strategy and good luck!