If you’re an investor looking for funding for a real estate investment, you’ve likely heard of hard money loans as a funding option. They’re a lucrative choice for many different reasons:
- Hard money loans close quickly.
- Hard money underwriting is usually a much easier process than conventional loan underwriting.
Investors with a poor credit history are more likely to receive hard money lending than conventional lending.
To the point about hard money being easier to obtain for those with poor credit history, this type of funding is an exciting way for people who have made mistakes in the past to get their foot in the door of real estate investing. So what credit score is needed for a hard money loan?
That being said, improving your credit score could improve your chances of approval with a hard money lender. Not only does it improve your chances of securing funding for your projects, but it adds opportunity and ease to other areas of your life as well.
I Thought Hard Money Lenders Don’t Look At Credit. Why Do I Need A Good Credit Score?
While there are hard money lenders that work with people with average and below-average credit, hard money is usually more expensive to borrow than conventional money. If you’re a beginning investor with a relatively short track record and apply for a loan with a hard money lender, they’ll want to vet you in multiple ways. One of those ways will likely be your credit score.
While some hard money lenders will turn down a beginner with a low credit score, others will charge higher interest rates, which can adversely affect the margins of your real estate project.
For example, at HouseMax, we require our lenders to have an average to above-average credit score for financing before we lend to them. This is crucial for increasing the chances that we’ll make our money back, especially when establishing a relationship with a new customer.
Whether you receive funding from HouseMax or another lender, it’s also critical to understand the current state of the market. In 2023, the real estate market is emerging from a boom, and there are signs of real estate slowing down. While we know a down cycle always presents opportunities, lenders still want to work with customers who demonstrate prudence and responsibility so that we can successfully realize opportunities in a down market.
What Is A Credit Score?
Investopedia’s straightforward answer to this question is:
“A number from 300 to 850 that represents a consumer’s creditworthiness.”
In other words, when you apply for loans or credit cards, the lender looks at your credit score as a summary of how much they can trust you to make payments on time and honor your financial obligations.
The higher the score, the more appealing the applicant looks to a potential lender. Your score is based on your credit history and takes into account the following:
- On-time or late payments
- Length of credit history
The total amount of debt you carry
A credit score below 640 makes you subject to loan denials or significantly higher interest rates. Credit scores above 640 increase your chances of being approved for loans with lower interest rates.
How To Improve Your Credit Score
There are no quick fixes for improving your credit score, but if you take consistent action, you’ll see your score trending upwards. If you want to know how to be approved for a hard money loan, there are steps you can take to help improve your credit. Here are the best ways to improve your credit score:
- Pay all of your bills on time
- Increase your credit limits, but do not utilize your entire line of credit
- Do not close a credit card account, this will lower your score
- Work with a credit repair company to improve your credit score
Be responsible and track your money to prevent straining your financial capacity in the future
Can I Still Get A Hard Money Loan With A Bad Credit Score?
Some hard money lenders will provide loans without a credit check, so the answer is “yes” you can get a hard money loan with a bad credit score. Be advised that most hard money lenders will require you to provide 20-25% of your funding for the deal.
At HouseMax Funding, we understand if you’ve run into problems in the past that have resulted in a low credit score. Though we require our customers to have average or above-average credit scores to work with us, we strongly recommend building a relationship with your lender, even if you’re not ready to apply right now.
Speak with one of our team members to discuss your project and finances so you can prepare today to start building on your real estate dreams tomorrow. Call us at 206-569-1132 today.