Dennis Melson, real estate agent and loan officer in Arizona, has been tackling borrowers in his private money lending business for years. He’s seen all kinds of borrowers and consoles those with bad credit that yes they can still lend a good deal – even a terrific deal – with private money lenders even though they have bad credit. Dennis deal with an Arizona population but his advice as facilely applies to an LA one.
Here’s some steps you can use to increase your chance of being approved for a hard money loan from Los Angeles lenders – even though you have bad credit.
6 ways to get a great deal on hard money loans with bad credit
- Patience and perseverance: Your lack of credit will certainly hold you back far more than someone who doesn’t have those hindrances. Persist. You’ll get there. Important, too, don’t let your frustration make you fall for the first dealer who accepts you. Be cautious and take your time.
- Approach a lender who is more sympathetic with your situation than with your FICO rate. The California’s Department of Business Oversight has tightened regulations on private lenders demanding higher standards of honesty. California’s federal government, too, has come out with rules such as the law 6500 on Consumer Protection which restricts balloon loans so that they cannot mature in less than 5 years.
Federal laws also stipulate that the lender can ask for no more than two reasonable sized prepayments although the number and amount depends on the structure of the loan. If the lender exceeds this, the borrower can consult state regulations to determine if the request is lawful and reasonable. If not, he may be able to exit his loan contract at no penalty to himself.
Furthermore, federal laws on consumer protection insist that all lenders must conduct some sort of credit check or income verification before issuing a loan. A lender who proceeds without checking the borrower’s financial ability, or, worse still, lends even though the borrower has a low chance of repaying performs, what is called, a “predatory loan”. Consequences are such that the judge can render such a loan unlawful and dismiss it if it occurs.
For these reasons and for their own protection, more and more private lenders are probing FICO scores than ever before. Fewer are willing to lend to a person with a history of low performance (this may show his unreliability) and fewer still accept credit scores under the 600s.
You may, however, be lucky enough to find someone who is more understanding. If you have plausible reasons for your low score, you may be able to find someone who will overlook your low ratings and who will evaluate your personal situation and collateral value instead.
- Dennis suggests that you avoid mortgage insurances. This is because if you apply for a home loan, you’ll need to pass two approvals. The first is from the lender and the other from the mortgage insurer who protects the lender in case you fail to repay your loan. You’ll be lucky enough if you pass one. Don’t stretch that luck by seeking to leap through two hurdles!
- Seek professional advice for fixing your credit report. You may be able to fix your ratings in which case you’ll not only find it easier to get a lender but will also pay less interest – and things will be cheaper and less painful all around. Credit repair specialists or agencies may be able to snag holes in your report and help you clear it up better than you can detect or know how to. After all, this is tehri area of expertise!
- Most sites tend to advise that you shop for as many lenders as possible. This is in order to compare terms such as loan-to-value rates, interest rates, loan types, honesty, flexibility and so forth.
If you have bad credit, the reverse holds true. The more private lenders you turn to the lower your rating drops since each time you turn in an application, it is recorded on your credit report. The moment a lender rejects you, your score plunges further.
- Apply for an FHA-secured loan provided by an FHA-licensed provider. FHA loans are provided by the government to people with low credit rating. Because it is government-guaranteed, these loans are safe.
FHA loans are more flexible than those parlayed by conventional lenders. Best of all, they require a smaller down payment than conventional loans.
You pay for this, of course, with higher interest rates than you would the conventional bank-backed loans, but it may be worth it.
Where do you go from here?
Once you’ve found your lender and managed to persuade him to accept you despite your bad credit ratings, your history of bad credit does not need to plague you forever. The lender will assess you based on his designs and experience with you.
Build your credit. Or if unable to do that prove that you’re worthy of earning his trust. Repay on time and according to term. You never know – you may yet end up being one of his favorite clients.
Hopefully he ends up being one of your favorite lenders, too!