Getting a mortgage on a cheap house that is paid off?

Question

I've never bought a house before with cash so I'm a bit unfamiliar with this but I've been doing some research, basically I would be buying a cheap investment property for $40k or less with cash but my understanding is that it is possible to then get a mortgage on this to pull money back out? I initially read about this in a book but when I search online about this it's hard to tell if what they wrote applies to any house or only houses over $100k. Assuming the house is in livable condition, rented out to a tenant and I have decent credit, should this be relatively straightforward to do or are there pitfalls to watch out for?

James Elden · Answer

Thanks for the info, the area where the investment properties would be is Arkansas.

Kyle J. · Answer

It's going to be REALLY hard to find a lender willing to do a mortgage on a home priced that low.  There's just no money in it for them.  You don't mention where you're located, but that might make a difference.  (I know there's no lenders around my area that would do a mortgage on a home at that price point.)

You might try posting where you're located to see if anyone has any suggestions for local credit unions or portfolio lenders that can do it.  If not, perhaps a HELOC could POSSIBLY be an option.

There's not a lot of lenders willing to do HELOCs on investment properties, but there are some (I have a couple myself, so I know they're out there).  And there's no Fannie/Freddie rules for those.  Each lender can (and does) make up their own rules for those, and you might find one willing to do one on lower price-point homes.  They usually have lower (and sometimes no) fees too.

If you decide to look into a HELOC, here's some questions to ask when calling around: What You Need to Know When Shopping for a HELOC

Good luck.