Bad credit can keep a lot of people from getting the loans they need, but this is not the case with hard money loans. Unlike traditional bank loans, hard money lenders do not require a person to have good credit to qualify. If you have been turned down for other loans in the past by your bank due to bad credit, it is important to explore this option. Most private money lenders will not care about your credit rating, but they do care about how much your property is worth/will be worth. The income that your property will generate is going to be one of the key factors in deciding whether to approve your loan application. The value of the property you want to get a loan for will be determined by its current market value as opposed to how much you paid for it. The more profitable the deal is, the easier it will be to get approved for some type of real estate funding.
When Your Credit Matters
An applicant’s three bureau report isn’t so much of an issue when applying for a hard money loan. But, lenders do tend to look for things like bankruptcies, foreclosures, collections, and charge offs. Those who have any of these items on their record have a lower chance of getting approved. If you have any problems with your credit, especially if it’s something like a bankruptcy or foreclosure, you should be ready to explain. The lender will want to hear your side of the story before making a final decision. It helps to have at least a somewhat reasonable explanation for the negative marks on your credit report. In these cases there is still a chance that you could get approved for the loan. This will give the lender peace of mind, which can work in your favor. It’s important to keep in mind that there are never any guarantees that you will get the loan even with a good explanation, but it’s certainly worth trying.
Take a Look at Your Credit Before Applying
It is always a good idea to take a close look at your credit report before you apply for a hard money loan. Most companies listed in our directory of hard money lenders will not have an issue with your credit score. Even though it’s not a critical issue, that doesn’t mean you shouldn’t try to improve your score. This could help you out quite a bit when going through this whole process. Make sure to look for any mistakes on your report, because it does sometimes happen. The last thing you want is for there to be something on your credit report that shouldn’t even be there. By doing this you will also be able to get a better idea about what your chances will be of getting approved. So we have established that one’s credit score isn’t a huge factor in getting approved for a hard money loan, so what is? These private lenders look for a history of real estate investing, so you will need to keep that in mind. The more experience you have with successfully flipping properties, the easier it will be to get approved. Because you don’t have much experience doing this doesn’t necessarily mean you won’t be able to get the loan you need though. The lender will also want to know how willing you are to put your own money into the project. The more money you are willing to spend on the project, the better they will feel about giving you the loan.
Getting Approved with Bad Credit
There are quite a few different things that an investor can do to get approved for a hard money loan with bad credit. You will first need to do your due diligence with the property before trying to get a loan to purchase it. The better of an investment the property is, the more likely you will be to get your application approved. It is imperative that you take the time to look into the property, have it inspected, and go through it yourself. You don’t want to leave any loose ends, because it could end up costing you the loan you need to buy the property. Another thing to consider, shop around! Not all private money lenders are going to care about what your credit report says. When these firms are looking to do various real estate deals they really want to make sure you have the ability to repay the loan with no problems. Consider what happens with a rehab loan. Like most real estate deals, you have sufficient equity in the property. As long as your credit report isn’t completely negative you should have no issues getting approved.