You can agree that getting a loan with bad credit is difficult. Most conventional banks and mortgage companies would not offer loans to people with bad credit. However, if you are a real estate investor or an entrepreneur working with income-generating properties, you may be interested in getting a hard money loan. And no wonder, because it’s one of the best options you can explore for your real estate business.
This article will teach you everything you need to know on how to get a hard money loan with bad credit.
Can I Get a Hard Money Loan With Bad Credit?
According to WikiHow, a hard money loan is a flexible finance option if you do not have a high enough credit score to qualify for a bank loan. These loans are funded by private investors rather than traditional banks and can be obtained by using your assets or properties as collateral.
You will love that a hard money loan is easier to obtain than getting a loan from a bank. Private lenders are more concerned with the collateral than your FICO score, so you don’t need a high credit score to get approval.
How Does Hard Money Work?
Hard money loans are secured loans where the money is secured by tangible assets, typically real estate. The way it works is that hard money lenders employ other criteria besides a borrower’s creditworthiness to assess your eligibility. The majority of these companies use your home equity, debt-to-income ratios, or loan-to-value ratios to assess your eligibility. For instance, if the assets have a high value, they may assess the advantages of the investment that a borrower is trying to finance and utilize it as collateral.
Hard money loans are more flexible than bank loans. They are therefore easier to secure than standard bank loans, which may take up to 90 days. The quicker turnaround time does, however, have a cost, namely higher interest rates, origination fees, and a shorter loan repayment period.
How Does Credit Affect Hard Money Loans?
Does credit score affect hard money loans? That is the question we frequently get from young entrepreneurs and real estate business investors.
The truth is your credit score may not have any significant impact on obtaining a hard money loan. If you have valuable assets and investing experience, you can get a hard money loan with a low credit score.
Do you need good credit for a hard money loan?
In essence, getting approved for a hard money loan isn’t dependent on having good credit. However, the majority of private lenders could demand that you have a minimum credit score before approving a loan.
Even though there are no specific criteria, the majority of lenders will accept borrowers with credit scores as low as 600, though they might need to pay a higher interest rate or provide a bigger down payment.
How to Fix Your Credit Score with a Private Lender?
Your chances of getting a better loan can be greatly reduced if you have bad credit. According to FICO scores, anything above 740 is considered good and will qualify you for the best rates. However, if your score is below 650 (poor credit), you’ll pay very high rates on loans and credit cards. A score of 670 to 739 is also regarded as good credit.
Paying off any credit card debt you have is the simplest approach to improving your credit score. The rationale is that the balance on your credit card accounts for 30% of your credit score. And because something called the utilization ratio, may have a significant impact on the credit score. The utilization ratio essentially refers to the amount that is accessible on your credit card.
For example, suppose you have $50,000 in credit card debt, $20,000 in personal loans, $10,000 in a tax bill, and $20,000 in medical expenditures, then your total debt is $100,000. That will bring you to a 50% utilization ratio if your total credit limit is $200,00. The 50% utilization will have a significant impact on your credit score. To maintain a decent credit score, keep your utilization percentage under 30% at all times.
Additionally, because a hard money loan doesn’t show up on your credit report, you can utilize it to raise your credit score by paying off your credit card debt.
How Can You Apply for a Hard Money Loan?
- Locate a Trustworthy Hard Money Lender in your state
You might want to spend some time before applying for a hard money loan to find a reliable lender offering the most favorable loan terms in your state. Some hard money lending companies like Lending Bee strive to assist clients with the appropriate money finance, while others are more of loan sharks.
- Apply for a Hard Money Loan
Start by allowing your private lender to report on the value of your property. Other documents may be requested when filling out the form. For instance:
- State driver’s license or a government-issued photo ID
- Financial records from the previous 60 days.
- Renovation plans, if any.
- Purchase documents.
Anyway, the application process is quite simple and won’t bother you with the tons of document requirements.
- Sign the contract to get the hard money loan
Compared to traditional banks, hard money lenders approve loans faster. Following loan approval, you must sign contracts with the loan provider. Be aware that the repayment period for hard money loans is only between 6 and 12 months long. Make sure to quickly repay the loan to prevent the private corporation from seizing your asset as collateral.
Hard money loans are an excellent option for borrowers who can’t qualify for traditional loans. Can you get a hard money loan with bad credit? Yes! However, it is essential to comprehend the benefits and drawbacks before taking out a hard money loan.
At Lending Bee, we are always available to help you structure the loan and find the best program. Contact us for a free consultation at 818-761-7234