Can you get a hard money loan with bad credit?

You want to buy an investment property and you need to borrow money to buy it but you might have bad credit.

You’ve heard or read somewhere that hard money loans are the types of loans that real estate investors use to buy investment properties. But you worry that maybe you won’t be able to qualify for a loan to buy real estate because you’ve had some credit problems in your past.

The good news is that most private money lenders don’t consider your credit history when approving loans on investment properties.

Most lenders are looking at the real estate asset that will be used as collateral for the loan rather than looking at your credit score. This is why they are called hard money loans, because they are loans against “hard” assets like real estate.

However there are some hard money lenders that do consider your credit score in loan approval. As you seek out lenders that lend in your geographic areas and compare interest rates and fees, make sure to ask each of them how credit score influences their lending decisions.

If credit does weigh in as a factor for approval, the next question is, what is the minimum credit score requirement that they require? Some lenders will give a higher interest rate to borrowers with a low credit score, while other lenders may increase the down payment requirement of a borrower with a low credit score. Always ask the credit question upfront if you are unsure. You may also search in the lender’s website for specific requirements regarding credit.

So, can you get a hard money loan with bad credit to purchase an investment property? The answer is yes.

Of course you can. Foreclosures, bankruptcies, low credit scores, short sales.

No problem. And why? Why is a hard money lender going to lend to you if you have bad credit, whereas a bank won’t?

Well the answer is because a hard money lender is an asset based lender. This means that a hard money lender is lending on the real estate as collateral.

The Four C’s

Now a regular lender looks at the Four Cs. The four Cs when they’re determining whether to approve a loan or not approve a loan.

Credit is one of the four Cs. But what are the others?

Collateral, which is what we mentioned, the real estate, the property.

Character, the experience of the borrower or other characteristics about the borrower to weigh in into the lending decision.

And then finally, The Cash, how much cash do you have to bring into a purchase or if you already own the property, how much cash has been put into the property to date?

When you’re searching for hard money lenders and you’re comparing your options among lenders, make sure you know what the minimum credit score requirement is of that hard money lender because some hard money lenders yes they do, they have a minimum credit score requirement.

Know what that minimum requirement is before you get too far in the application process.

In fact, private money is one of the most popular means by which real estate investors with poor credit are able to purchase investment properties. While most hard money lenders don’t care about the credit scores of their borrowers, there are some lenders who do have credit score minimums or other credit-based criteria.

Do your homework on the specific requirements of each lender when comparing your loan options. If your credit score will affect your interest rate or will increase the amount of your down payment, you need to know!

By asking questions upfront about how credit score influences a lender’s lending decisions, you will avoid any surprises later down the road that may kill your real estate deal.

If you have more questions about this contact us or leave a comment below.

 

 

 

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About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.