Mortgage on a $5,000 home?

Question

I'm really trying to buy a house now to live in and flip within time. I understand I will still need to give a down payment when approved for a mortgage but I found plenty of foreclosed homes for under $5,000, do I still need to take out a mortgage on a $1,000-$5,00 home?

Also, is it possible to get a loan for a home under $5,000?

Account Closed · Answer

You are all sooo helpful I really appreciate all the feedback. It was just a simple question but all the info I read I really appreciate.

James Hiddle · Answer

I knew someone that bought a house for $4,000. He was a total newb and didn't do his due diligence very well. He thought he was getting a bargain but the house turned out to have major issues. Foundation problems,mold,termites,needed a new roof,etc. It was a total wreck.

On top of that it had code violations up the ying yang that totaled around $40,000. Total repairs including getting rid of the violations totaled over $150,000 the worst part the market value of that home was around $55,000 so he ended up with a big time money pit. I never did ask him what he sold it for but this proves that you need to do research. Just because a property is cheap doesn't necessarily mean it's a bargin.

Jeff S. · Answer

If you find the right seller you should be able to give them a note with a plan on fixing up the property to make it legal and liveable.

This would take a lot of research and learning on your part. The bigger problems you will face will have to do with city inspections for plumbing and electrical plus having a good heating source etc etc. Realize as an owner occupant you can do some work otherwise required to be hired out but there are limits and hiring professionals cost big.

Learning how to estimate these costs is a valuable asset.

Aren't these places stripped of plumbing and everything else that a meth head could sell?

Bill Gulley · Answer

State law probably prevents securing a loan at or below $5,000 with real property. Such minimum loan amount restrictions came into being during the depression due to scammer types.

Just FYI, I have turned down free houses, nothing that cheap will be that cheap!  :)

Prashant P. · Answer

I agree with Rob K.  If you need to take out a loan for $5k you might have to save some money first.

Some lender will loan under $50k but you will have to find the right programs and your rates will be higher.  I don't think any will loan a $5k loan because closing on the property will be close to half the purchase price and it really wouldn't make much sense with a bank.

As mentioned about there are certain things to watch out for when buying houses this cheap.  The overall condition, liens on the house and location will all play into how much the house sells for.

I have bought houses for $15k.  Most were in decent shape but were not in the best areas of town.

Rob K. · Answer

Honestly, if you don't have $5K, I would recommend saving up the money before you purchase.

If this house is a must have or a super deal, you could get a personal loan from a bank or a cash advance on a credit card. Cash advance fees are 3% (only $150 for closing costs) and you can get a card that's zero interest for a year. You could pay that off in 12 months even with a part time job at Burger King. Just make sure you have a good estimate of how much $ you will need to put into it. I've bought a few $5K houses. Some only need minor repairs while others need a lot more.

Kelly N. · Answer

Hi,

From what I've been told, you won't be able to get conventional financing on a house worth less than $50k.

IMO, for a house that cheap, even if you could get a loan, you'd be paying so much to close the deal that it wouldn't be worth it to finance.  Pay cash.  Have it inspected so you know what you are getting into, have your contractors look at it to give you estimates for repairs.

If you find something that's more expensive and you don't have the cash but it's is still under the bank's $50k limit, consider asking for seller financing if it isn't bank owned.  You'd have to pay a higher interest rate, but if the numbers work it might be worth it temporarily to get the deal.  If it's a buy and hold and the after repair value it higher than $50k, you may be able to get a conventional loan then and put some cash in your pocket to boot.

Good luck,
Kelly

Dyna J. · Answer

What sort of problems would you expect with a property that cheap? Of course there would be a lot of deferred maintenace so a lot of money would be spent on renovation. Also there might be some serious structural problems where it might be easier to just tear it down and rebuild. And maybe back taxes, water liens, IRS liens, unpermitted work, code violation fees (sometimes $100s a day), HOA fees, city special assessment fees, mechanics liens, etc.

Now all of those might not be relevant or even survive foreclosure so forgive me if I'm mistaken. I am curious to hear from an expert on what to expect.

OP, if the house is under $5k I'd just pay cash. Get a second job and save it up or borrow from a friend or relative.

James Hiddle · Answer

No conventional lender will loan that low as there is hardly no money coming in for them via the interest and it's going to end up being a short term loan anyway if this is a flip. And I doubt a hard money lender would loan that low as well.

I'd be leery of buying something that cheap without doing a lot of due diligence. If the #'s are feasible I suggest finding the money via a relative,credit cards,sell something,etc.

Damian Baynes · Answer

Hey,

It's not necessarily a requirement to take out a mortgage if you don't want to. I haven't heard of a mortgage for an amount that low before but I'm sure some of the more experienced posters can say for certain. Good luck in your search.