What Is the Minimum Mortgage Amount?

What Is the Minimum Mortgage Loan Amount You Can Borrow?

Loan offerings vary by mortgage company, as do interest rates, closing costs and loan amounts.

Most lenders don't disclose their minimum loan amounts, though—only their maximums—so finding a lender that offers small mortgages can present a special challenge. Generally speaking, you'll need to borrow at least $50,000.

Why Do Lenders Have Minimum Mortgage Amounts?

One reason lenders could have minimum mortgage amounts is that lenders may not make much money from small mortgages. Analysis from the Housing Solutions Lab, a housing policy platform associated with New York University's Furman Center, shows that smaller home loans are hard for lenders to profit from and may not cover a company's costs of originating the loan.

What's more, closing costs may bump extremely small home loans into federal classification categories that are often associated with predatory lending.

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Small Mortgage Loan Requirements

To qualify for even a small mortgage loan, you'll need to meet certain credit, income and down payment requirements.

Generally speaking, you'll need to have a:

• Good credit score: There's no hard-and-fast credit score that qualifies you for a mortgage, but many lenders require a minimum score of 620. Certain government-backed mortgages, like Federal Housing Administration (FHA) loans, allow scores down to 500. The higher your score, the better the terms and interest rate you'll likely qualify for.
• Stable work history: Lenders want assurance your income is stable enough to cover your loan payments for the long haul, so qualifying may include a requirement that you have proof of steady employment. Some mortgage lenders even require a two-year record of work for your current employer or in your current field.
• Decent-sized down payment: Even if you're taking out a smaller-sized mortgage, your lender will likely require that you bring some of your own money into the transaction. Generally, you'll need to put down 20% of the purchase price to avoid paying for private mortgage insurance (PMI). Some loans allow for down payments as low as 3.5%, though, while others (like loans guaranteed by the U.S. Department of Agriculture or Department of Veterans Affairs) require no down payment at all.

Keep in mind that, just as mortgage minimums can vary, qualification requirements can differ across mortgage companies too. If you're worried you may not meet the qualifications above, you may want to shop around and compare lenders. It's possible you may qualify with one company and not another.

Learn more: The Complete Guide on How to Get a Mortgage

Pros and Cons of Small Mortgage Loans

Small mortgage loans aren't right for everyone, so it's important to consider both the pros and cons of these products before taking one out.

Learn more: Credit Union vs. Bank Mortgage: What's the Difference?

How to Find a Small Mortgage Loan

When you shop around for your mortgage, you may need to check out several different types of lenders, not just big banks.

A local bank or credit union may be more willing to work with smaller-dollar loans or even have special incentives to invest in your community. Key Bank, which operates in 16 U.S. states, has a special Community Mortgage program with no minimum loan amount. To qualify, you may have to meet special requirements, including attendance at a homebuyer education workshop. Other credit unions and banks with low mortgage minimums include Credit Union 1, Members Choice Credit Union and Members Trust of the Southwest Credit Union.

Tip: Credit unions require you to be a member, which may entail being a part of a specific group (such as the military) or living in a certain geographic location. When researching low-dollar mortgages at a specific credit union, check to make sure you can qualify as a member.

Learn more: Buying a House With Cash vs. Getting a Mortgage

Things to Look Out for When Shopping for Small Mortgage Loans

Even when you're looking for a small mortgage, the details matter. If you're not careful, borrowing a small amount could be more expensive than taking out a big loan.

Closing costs are one of the details you should pay close attention to, since these can vary widely by lender. You'll also want to understand your total interest costs. It might not seem that important for a smaller loan amount, but the difference between 5% and 7% APR on a $100,000 loan with a 15-year repayment term is nearly $20,000 in interest.

Tip: Getting prequalified with several lenders can help you compare costs and loan options without hurting your credit. As an added benefit, you may be able to use these quotes to negotiate better deals with other lenders. Just keep in mind that the terms and rates you're offered could change if your credit or other factors change by the time you apply for the loan.

Learn more: How to Compare Mortgage Loan Offers

Alternatives to Small Mortgage Loans

If you only need to borrow a small amount to purchase a home, there are options other than mortgages.

• Personal loans: Personal loans are a type of unsecured loan that usually range from $250 to $100,000, depending on your lender. They come with lump-sum payments and can be used for nearly any purchase.
• Renovation loans: If you're buying a home that needs some work, you could use a renovation loan to purchase the house and fund the repairs with one single product. The FHA 203(k) loan is one example of this.
• Tiny-home loans: If a tiny home is what you're looking to buy, some companies offer financing specific to these properties.

A quick note if you're eyeing a condominium: The process of getting approved for this type of loan can be a bit different from a standard mortgage, so you may need to let your lender know upfront.

Learn more: Can I Buy a House with a Personal Loan?

The Bottom Line

No matter what financial product you use to buy your home, your credit score is going to play a role—and the better your score, the smoother the process may be. Before you start shopping around, check your free credit report and FICO^® Score^Θ to see where you stand and whether there's room for improvement. Taking this step before you take out a loan could help you qualify for better rates and save you a lot of cash in the long run.