Conventional Loans limits in IN under $40k

7 Replies

I am a fairly new investor and am now starting to explore the Indianapolis market. I have seen several properties that I can negotiate down to $45k or $50k, however it does not seem like I can get a conventional loan for these properties due to guidelines that some conventional loan officers have where they will not do a loan for less than $50k. My strategy as an OOS investor is pure buy and hold rental properties and would like to take advantage of the currently lower rates over 30 yr amortization period.  

I also understand that in some cases I can only get an investment property loan for a SFR with 20% down and it has to be 25% down for a small multifamily or duplex.

Are there any banks or loan officers that you can recommend for smaller conventional loans or that can work with 20% for a multifamily?

@Richard Bull  In the lending world there are basically 2 types of loans for these properties - "Conforming" loans or "Portfolio" Loans.

A "Conforming" loan is a loan governed by Fannie Mae and Freddie Mac (if you recognize those names). You can this same loan from any bank. The rules to Fannie/Freddie loans is that you have to loan in a person's name. 30 year fixed rates here with a lower rate than other loan types. The rates and terms are better for these loan types but there's not much flexibility for the bank to make a decision - since it's not their money. However, most banks will place "overlays" on top of Fannie/Freddie rules to limit their risk.  Specifically in your case, banks lose money when writing loans of this size.  Since banks aren't in the business of losing money most won't lend a this low amount.  But Fannie/Freddie do not have a minimum loan amount.  Try to seek out banks that are smaller to mid-sized in nature for a higher success of banks with no overlays.

A "Portfolio" loan is a loan that comes from the bank's own portfolio of money - thus the name. So the bank makes the call. These loans could be easier to qualify for but the terms are different than a conventional loan. Sometimes the rates are adjustable, sometimes they are higher rates, sometimes these are 15 year loans....and often they are all three of these. And since the bank makes their own decision on their own money...each and every bank will have slightly different loan rules. You would literally have to call each and every bank to find out the rules to each and every portfolio loan out there.  Same type of thing here though, most just won't lend this low but some will.

This is a very common issue facing many investors.  Hope this helps in some way.  Thanks!

Mostly small bank will be able to help you in small loan amount.

@Richard Bull , you are going to have some issues playing with properties of that value.  I know that plenty of folks on this website are doing just fine with properties of that value, but you are going to ALWAYS have an issue with financing.  When you find a lender that will finance those properties, the money will be more expensive, because they have to make money somehow.  When you are going to refi to recycle your capital, you are going to have even more of an issue.  This doesn't mean that a strategy built around $40-50k properties is not viable, but you will be severely hamstrung with financing and exit strategies.  

@Richard Bull it does not make sense for a lender to do such a small loan. If they are going that low you are prob paying higher origination fees.

@Andrew Postell makes a lot of sense. Thanks for this insight. I will continue to look and will also ask about portfolio loans. I should probably take a look at smaller banks in Indy for more options. 

@Richard Bull try 53rd bank. I got a traditional 80% LTV 30 year note for a total property value of $45k for a condo I bought at a good interest rate. If you PM I can introduce you to the banker I specifically used in Avon, IN.

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