If you are interested in purchasing a small home or have a large down payment for a home you may be surprised to encounter difficulty in obtaining a mortgage loan. Unfortunately, many lenders do not like to lend small amounts for mortgages, making these loans difficult - but not impossible - to obtain.
What Is A Small Mortgage?
Although every lender defines a "small mortgage" differently, the general rule is that anything under $120,000 is considered small. Many times, lenders will refuse to lend less than $80,000.
The reason for this is that lenders perform the same amounts and types of work for a small mortgage as they do for a larger one. With a larger mortgage, however, the lender is usually guaranteed to make money from their investment. In contrast, lenders often lose money on smaller mortgages because they do not make as much interest off of them. It is, therefore, merely a business decision for lenders to not lend small amounts because the smaller the amount of the loan, the less profit they earn.
Promissory Notes Explained
Despite being referred to as such, a promissory note is not a mortgage. Rather, it is one of the two main documents of any mortgage. In a promissory note, the borrower promises to repay the loan provided by the mortgage lender with interest. Usually, this document also establishes the length of the mortgage, meaning the amount of time the borrower has to repay the loan, the interest rate attached to the loan, and the lender's rights in case of a default. Sometimes, a promissory note is called a "mortgage note" or "real estate note."
Promissory Notes and Small Mortgages
A promissory note does not procure the mortgage but instead secures it. In the situation of a small mortgage, this note becomes even more important because it establishes the loan as a mortgage and not another type of loan. With any type of promissory note, the lender must agree to its terms. This means that the lender must agree to identify the loan as a mortgage. While school, small business, and other types of loans also include a promissory note, they identify the loan as another type, not as a mortgage.
What does this mean for borrowers? In short, a loan designated as a mortgage can result in better tax credits and a beneficial reporting on their credit score. Despite being debt, mortgages are viewed favorably and often increase the borrower's credit score, regardless of its amount. Additionally, most owners can deduct mortgage interest payments on their taxes.
Getting a Small Mortgage
Finding a small mortgage can be tough but, in general, it follows the same rules and procedures as acquiring any other mortgage. If possible, determine the amount of loan you need and can afford before searching for a home and try to obtain a pre-approval before making an offer. Doing this work beforehand will make your house-hunt easier and less stressful because you will know how much you can afford and whether you can obtain a mortgage.
Many lenders offer small mortgages, but rarely advertise their minimum loan amount for fear of deterring applicants. Local banks or credit unions are more likely to approve small mortgages because they directly earn interest and do not pay a management company to oversee the loan. The list below contains lenders offering mortgages of $100,000 or less, but check with the lender as this is subject to change.
- Wells Fargo Home Mortgage
- 1st Priority Mortgage
- Bank of America
- CitiMortgage
- AmeriSave
- Quicken Loans
Depending on the circumstances, these banks may approve smaller loans. Additionally, they may change their minimum loan amounts based on economic factors. Contact them individually to determine the minimum amount they lend.
Your Small Mortgage Loan
The answer to your question as to whether you can get a small mortgage on a promissory note is yes! In your search for a small mortgage, try contacting local banks or credit unions. Subsequently, contact national lenders to determine the smallest mortgage they offer. Obtain and compare several quotes before signing the promissory note and don't borrow more than you can repay, regardless of the lender's minimums.
