hard money loan

A hard money loan is a type of short-term loan taken out by real estate investors. The loan uses the property being purchased as collateral. A hard money loan can come with several benefits, such as speedy financing and a hassle-free application. If you’re an investor with a poor credit score, you might be wondering if you qualify for a hard money loan.

Hard Money Loans Have A Less Stringent Approval Process

Hard money lenders are more flexible than traditional mortgage lenders. Around 68 million Americans have poor credit, so this spells good news for borrowers within this population who are looking to take out a hard money loan.

As mentioned, a hard money loan is a secured loan. That means if you default, the lender will be able to seize the property and sell it to recover their money. This reduces the lender’s risk, and they become more willing to approve credit. In other words, you can still qualify for a hard money loan if you have bad credit.

What Do Hard Money Lenders Consider

Yes, the hard money lender won’t completely ignore borrower credit, but their underwriting process is usually less strict because they focus on other factors. To begin with, the hard money lender will require collateral or security in the form of real estate or property.

The hard money lender also considers investor experience. If you have a good track record and considerable experience as an investor, that makes you less risky, so you’re more likely to be approved. The other thing is if you have enough down payment to bring into the purchase. If you have more cash to put into the property, this also reduces the risk you pose to the lender.

Things To Keep In Mind When Taking Out a Hard Money Loan With Bad Credit

Keep in mind that a hard money loan can be very convenient for investors, but they also come with higher interest rates than average. This is typical of most short-term loans that need to be paid back in a short amount of time.

As such, the lender will also consider your income and the amount of debt you already have on your plate to determine your ability to service the loan. Overall, if you meet the minimum income and credit score requirements, you’ll qualify for the loan.

The bottom line is that taking out a hard money loan is possible for borrowers with bad credit. However, always go over the lender’s requirements to ensure that you qualify for a favorable deal.