So you’re lining up your funds for that real estate investment project but there’s one caveat– you’ve stumbled financially many times over and have a low credit score.
Failing to reach the required minimum credit score could mean banks and other conventional lenders will decline your loan application. For these lenders, your credit score is what matters most to determine whether you can qualify for credit, how they structure your terms, and how much interest rates will be applied. The good news is, there are low credit loan programs available for real estate investors. In this blog, you’ll learn how to get your finances back on track using these low credit loan programs.
Negative Factors That Cause Low Credit Scores
If your credit scores are between 300 to 579, you’re in the low credit score category and you’re most likely to find it hard to qualify for financing. These negative factors are the likely why you have a bad credit score:
- Insufficient credit history. If you only have a minimal credit history– whether you’re relatively young, just recently moved to the U.S., or for other reasons– your credit score could be below average.
- Maxing out your credit. Using up most of your available credit lowers your credit score. Even if you are purchasing a property as an investment, banks are still considering the loan as part of your debt and affects your credit utilization ratio.
- Past Due Payments. Like many Americans, paying your bills on time could be a challenge nowadays. Missing your payments could ultimately lead to bad records with the credit bureaus – Experian, Transunion, or Equifax.
- Defaults. If you fail to settle your dues, your debtors have the option to sell your debt to a collection agency which can stain your credit report for up to seven years. Having charge-offs, repossessions, or foreclosures, all contribute to low credit scores.
- Filing for Bankruptcy. Bankruptcy won’t do your credit any good. Most conventional or traditional lenders automatically decline previous bankruptcies.
Buying An Investment Property with Bad Credit
If you have a low or bad credit score, there are some ways which can help you get approved for an investment property purchase. Though not a sure-fire way of having you secure an approval, the benefits are for the long run which you can reference to in the future event that you may need a new financing transaction.
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Increase your Participation in the Purchase
In this scenario, increasing your down payment or equity in the investment property effectively reduces the amount of loan you need with respect to the property’s appraised value. Thus the lender will see an LTV favourable to them. As an example, say the property has an appraised value of $500,000, normally, the required down payment is 30% of the appraised value, which leaves a loanable amount of $350,000. Your LTV Ratio in this scenario is 70%. If you increase your down payment to $250,000, your LTV ratio is reduced to just 50%. The lower loan amount relative to the appraised value implicitly characterizes your seriousness and commitment to the loan and the property.
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Increase in Income
A relative increase in your income from the time you’ve had a poor credit score signifies a relative increase in your purchasing power or disposable income, allowing lending companies to evaluate your loan application further.
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Paying Off Some Of Your Other Debts
Lowering your debt balances will effectively increase your allowable disposable income because there will be less monthly amortizations to cover. Congruently, your loanable amount can be increased or your term can be shortened. A shorter term will signal to lenders that your loan application presents lower risks.
Financing Alternatives for Poor Credit
1. Hard Money Loans
Many hard money lenders are also asset-based lenders. Unlike banks, they evaluate your loan application primarily on the merits of the asset or property being purchased- not merely deciding based on your low credit score. They may still look into your credit history but consider the potential profits you can make after your real estate deal for the most part. Paying off many short-term hard money loans also adds up to your positive credit history, so they give you a good chance of rebuilding your credit. It’s like hitting two birds in one stone!
2. Joint Ventures
A joint venture partner may also help infuse cash for your real estate investment. Though you will have to split the profits, you can share the financial load, property management, and even learn from their experience.
3. Seller Financing
The seller in this case agrees to finance part of the purchase price of the property. You can come up with an agreement with the seller on how you can pay for the balance of the purchase price, and how to handle the situation in case of default.
Loans For Low Credit Scores
If your low credit score is keeping you from realizing your real estate investment goals, there are many lenders with low credit score programs you can avail. Asset-based lending allows the acceptance of various assets of a person or entity that needs funds. You can use our low credit loans for following:
- Residential or Commercial Property Investments Purchase
- Rehab or Fix and Flip Loans
- Temp to Permanent Loans (Refinancing)
- Cash-out Loans
- New Construction
- Lot Only Purchases
Hard money lenders like GL&L Holdings are one of the foremost private lending companies in Houston that cater to these types of loans.
How Does A Low Credit Score Loan Work
Applying for a hard money loan with bad credit isn’t as hard as you think it is. Most lenders will have more or less the same process:
- Collect details of the real estate deal, including appraisal report and comps.
- Provide you with a loan quotation which includes the rates and terms.
- Submit your loan documents and evaluate you for approval.
- Once approved, the loan is closed through a title company.
Rebuild Your Credit Score With Low Credit Loans
Once you’ve been granted a low credit loan by your hard money lender, ensuring you don’t miss payments can help turn your low credit score to acceptable, until they become excellent and you become qualified for traditional or conventional loans.
Improving your credit score will not only free you from unpaid bills and stress but most importantly, you increase your credibility as a real estate investor. At GL&L Holdings, we leverage on our extensive connection with banking partners to help you qualify for these long-term loans. Soon enough, financial Institutions will line-up to get your business.
To know more about how our financial services can help you, give us a call at (832) 770-9415, or fill up this form to get a free loan quotation. We’ll guide you and make the process as easy as possible for you.
