You might think that because hard money loans have traditionally been equity based, no one should or would care about credit. While this is true sometimes, there are instances where credit does play a part in underwriting a hard money loan.

For example, if there are two borrowers applying for similar loans and one of them has good credit while the other has bad credit, it is not uncommon for the one with good credit to get a slightly better interest rate and to get approved more quickly.

Really, it depends on the investor who is going to provide the money for the loan. Some of them only care about the property and its value while others look at the credit and the borrower’s ability to pay.

A comprehensive look at a file would take into account all of the above factors. One would want to know how much the borrower makes so that he could be reasonably sure that the borrower could afford the payments. He would also want to see the borrower’s credit to determine how the borrower has paid his accounts in the past. Additionally, he would want to be certain of the property value in order to protect him in the event that the borrower doesn’t make the payments and he has to foreclose.

Most private money lenders/investors want to see what the borrower’s credit looks like, not because the score is so important but because they want to know the history. There could be bad credit in the past but if the borrower has a reasonable explanation for what happened, they would be more likely to do the loan. If the borrower has never paid anything on time and has many accounts that are currently delinquent, that could be a signal that the loan that is being requested may end up in default.

Particularly in the recent past and in today’s market, bad things can happen to people’s credit and finances. This shouldn’t prevent them from moving forward, which is why hard/private money can be a good solution to help get people back where they want to be. Even though credit is a barrier in conventional loans, it doesn’t have to prevent people from getting the money they need.