How To Get Approved For Small Home Loans Under $100k

Buying a home is an exciting milestone in life. However with the average home price over $400,000, homeownership can feel out of reach for many buyers. But what if I told you it’s possible to get a mortgage under $100k?

Small home loans under $100k do exist. While not common, there are lenders that offer these tiny mortgages. With some savvy shopping and financial preparation, you can get approved for a small home loan.

Here’s what you need to know about getting a mortgage under $100k:

Why Are Small Mortgages Hard To Find?

Most lenders shy away from tiny mortgages for a couple reasons

• Lower profit margins – Lenders make less money on small loans They incur the same origination costs but earn smaller commissions.

• Less attractive to sellers – Cash offers are much more appealing to sellers than small mortgage loans. This makes it tough for small mortgage buyers to compete.

The average mortgage amount is around $200k. So anything under $100k is considered “small dollar”. These tiny loans account for a very small share of mortgages.

But small mortgages are critical for low-to-moderate income buyers. They provide an accessible path to homeownership.

Where To Find Lenders That Offer Small Mortgages

While rare, some lenders do cater to the small mortgage space. Here’s where to look:

• Community banks and credit unions – Smaller local institutions are more likely to work with small mortgages. They focus on serving their communities.

• Nonprofit lenders – Organizations like Habitat for Humanity offer mortgages under $100k to promote affordable housing.

• Special programs – Some banks have created special products for small mortgages. For example, KeyBank’s Community Mortgage Program offers loans with no minimum amount.

• Government agencies – The FHA, VA, and USDA all back loans under $100k. These are a great option for first-time buyers.

• Partnerships – Nonprofits, banks, and agencies team up to offer small mortgage programs in some areas. Check locally to see if any programs exist in your city.

Tips For Getting Approved For A Small Mortgage

Getting approved for a tiny mortgage takes some extra effort. Here are some tips:

• Shop around – Be prepared to put in legwork finding a lender that will approve a small loan. Cast a wide net and apply with multiple potential lenders.

• Improve your credit – Lenders will be extra cautious with small mortgages, so aim for a credit score of at least 680. Pay down debts and correct any errors on your report.

• Save up for a down payment – Putting 10-20% down shows lenders you’re financially ready. Save diligently even if the amount seems small.

• Lower your DTI – Keep your debt-to-income ratio below 43%. Pay off credit cards and auto loans to lower your monthly debts.

• Get preapproved – Being preapproved gives sellers confidence in your financing. Make sure you also get preapproved for any down payment assistance programs.

• Be ready to act quickly – Be prepared to move fast when you find a listing in your price range. Small mortgages can’t compete with cash offers, so you need to aggressively pursue opportunities.

• Consider alternatives – If you have no luck with a small mortgage, look into FHA loans, personal loans, or rent-to-own arrangements.

Costs To Prepare For With A Tiny Mortgage

A small mortgage loan comes with many of the same costs as a conventional loan. Prepare for expenses like:

• Closing costs – Plan for 2-5% of the total loan amount. Closing costs may be rolled into the mortgage.

• Down payment – Have 3-20% of the purchase price ready for your down payment.

• Home inspection – Budget $300-$500 to have the property thoroughly inspected.

• Appraisal fee – The appraisal costs around $500 on average.

• Attorney fees – First-time buyers may want to work with a real estate attorney, which costs $1000-$2000.

• Private mortgage insurance – Expect to pay PMI if you put less than 20% down, which runs 0.5-1% of the loan amount monthly.

While costs add up fast, remember the amounts are lower than a conventional loan since the mortgage size is smaller.

Alternatives If You Can’t Get Approved

If you have no luck getting approved for a small mortgage, consider these alternatives:

• FHA loan – FHA loans only require a 3.5% down payment and have lower credit requirements.

• Look at condos – Condo-specific loans tend to have lower down payment requirements.

• Personal loan – An unsecured personal loan up to $100k is an option, but will have higher rates than a mortgage.

• Rent-to-own – Find a landlord willing to let part of your monthly rent go toward a future down payment.

• Live with family – Move in with parents or relatives rent-free to supercharge your savings and improve your DTI.

• Lower your expectations – Consider buying a lower-priced property or one that needs minor renovations.

• Save up – Keep saving and try again in another year or two once you’ve built your down payment fund and improved your finances.

The Bottom Line

Small mortgages under $100k are uncommon but definitely attainable. If homeownership is your goal, be persistent and creative in your search for a lender willing to work with you. With some financial discipline and compromises, you can make your homebuying dream happen even with a tiny mortgage.