Have bad credit or no credit? Don’t worry! You can still invest in real estate. The answer is hard money loans. Even with a great investment opportunity and solid business plan, you can still leave a bank empty handed due to their strict regulations when it comes to credit scores. However, the ability to obtain loans from a hard money lender is determined by the value of the property and not the borrower’s credit score. Lenders focus on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete. The primary focus is on the property’s profitability.
Not every investor has a perfect credit score which is why many consider hard money loans. While traditional lenders focus exclusively on credit scores when it comes to loans, hard money lenders focus on the market value of the property. They’re not concerned with your personal credit. Instead, they are focused on the real estate deal in question. This is how hard money lenders protect themselves in the event of default. Knowing the value of the property helps them limit the amount they loan to the borrower so that they can recoup their investment by taking back the property. This is how hard money lenders are able to provide financing to investors who would not be approved for a loan from a traditional lender.
WHAT IS A HARD MONEY LOAN?
Hard money loans are short-term loans for a real estate investment. These individual generally flip the properties in order to make a profit. Hard money loans are also available for land purchases. Because the hard money loan process is significantly shorter than that of a traditional loan, investors use hard money to begin your real estate investment quickly. Before you apply for a hard money loan, there are the hard money loan facts that you should consider.
CAN YOU GET A LOAN WITH BAD CREDIT?
Hard Money lenders really don’t look at credit like traditional lenders do but income can be crucial. Hard money lenders approve borrowers who have had foreclosures, bankruptcy, mortgage lates, collections, etc. Income will be verified through borrower’s bank statements. Though the loan is based on the value of the property that serves as collateral, hard money lenders still need to verify that the borrowers can make the payments before they can get any money.
WHO ARE THESE LENDERS?
Hard money lenders are not loan sharks. They are lenders with less regulations than traditional lenders and they can help the borrowers with their investments more efficiently than banks. Hard money lenders are not like traditional lenders. They don’t just finance the loan and then you never hear from them again. Hard money lenders are on your side and you should be able to work as a team. Without respect, that relationship falls apart. You can find out if the hard money lender values respect by checking online for testimonials from past borrowers.
Alternative investors do not give out loans unless they deem it wise and profitable. Their goal is to make a return, after all. Hard money lenders are specialists who will help the borrower find a loan that works for them. The terms of a hard money loan are not impossible, in fact they are incredibly flexible and the lenders make it easy for the borrower to negotiate.