Man holding up a sheet with different credit rankings and wondering how to get a hard money loan with bad credit.

Are you ready to jump into the world of real estate investing, but have concerns about your credit score? This is a situation that’s more common than you may think: people’s credit scores drops for various reasons, and it can make you feel like you have to stay on the sidelines of real estate wealth-building while everyone builds their portfolio.

While it’s true that a poor credit score is highly prohibitive for conventional loans, hard money lenders are far more understanding. For example, at HouseMax Funding we live for awesome real estate deals that create win-win situations. While we do have credit score requirements for our borrowers, we want to share how to get a hard money loan with bad credit. It’s possible, and with some extra effort, well worth it to start your investing career.

Increase Your Down Payment

A great way to increase chances of getting a hard money loan with bad credit is paying a larger down payment. This signals a few things to lenders:

  • You’re capable of acquiring and/or saving a significant amount of money
  • You have skin in the game, and don’t view a hard money loan as “fun money” to mess around with
  • Their risk is decreased because you’re highly invested

It’s typical for hard money lenders to require a 20% down payment, especially with borrowers they don’t have an established relationship with. If you have poor credit, aim to have a 25-30% down payment.

Open An LLC With A Partner

Many real estate investors open an LLC for various reasons. If you’re thinking of doing the same thing, consider opening an LLC with a trusted partner with a good credit ranking. While your credit will still be vetted, having a partner with high credit that also has legal and financial skin in the game makes it much easier to get a hard money loan with bad credit. 

It’s worth noting that taking on an investment partner is a significant decision, and doing so should be done with great care and consideration. It’s also highly advisable to consult an attorney when forming any kind of LLC, including a partnership.

Leverage Past Experience

We’ve worked with borrowers with low credit scores who have stumbled upon hard times because of circumstances such as divorce or medical emergencies but have a solid track record with past real estate investments. At HouseMax Funding, we get that sometimes good people are dealt a bad hand. However, a screamin’ track record of profitable real estate deals has the potential to shift chances of financing in your favor.

As a reminder, many real estate deals begin long before you ever find your property. In other words, the relationships you build today (with lenders, realtors, contractors, and managers) are the ones that open the doors when you find the property you want to make a move on. Even with an excellent track record, going to your local real estate MeetUps and calling a hard money lender just to start a conversation goes a long way in the future.

Pay Higher Fees & Interest

Hard money loans typically charge higher interest rates and fees than conventional loans for two simple reasons:

  1. Hard money lenders focus on higher-risk, higher-reward lending models.
  2. Borrowers benefit fast closing times and a loan process that’s much more convenient and streamlined than conventional loan underwriting.

If you’re wondering how to get a hard money loan with bad credit, be prepared to possibly pay higher fees and interest on top of the premium typically associated with hard money. If you’re having trouble swallowing the fees, remember that if your deal is solid and profitable, it might be worth it to pay a little extra upfront (and keep in mind you’re building rapport with the lender). 

Come To The Table With A Solid Deal

Hard money lenders want to know whether the numbers make sense. If you present a fix-and-flip project to a hard money lender and the purchase and repair costs plus the after-repair value (ARV) project cash flow, the lender knows they’ll get their money back – with interest. 

Granted, your investment numbers need to make sense to hard money lenders whether your credit is stellar or just fair. However, the better the deal (and the more organized and thorough your due diligence), the more likely the lender may be to work with you.

Improve Your Credit Score

Even if you find a hard money lender willing to work with you with bad credit, you’ll benefit from improving your credit score. Not only will it open the doors to more real estate deals, but you’ll enjoy the peace of mind that comes with knowing your finances are on the up and up. 

If you’re unsure where to start, you can hire a credit improvement specialist to point you in the right direction.

Talk To A Hard Money Lender Today

At HouseMax Funding, we’re here to turn your dreams of being a real estate investor into a reality. We work with beginning and experienced investors and are always excited to partner with new clients. We get that it’s intimidating to make that first call to a lender when your credit score is less than ideal, but we are here for a phone call. We can tell you what we’re looking for and help you get clear on anything you need to know to bridge any gaps before working with us.

Call us today at (512) 551-0727.