If you’re a borrower looking for financing options for your investment property, your only options are to reach out to conventional institutions (banks), mortgage companies, and direct private money lenders.
However, if you are a real estate investor with bad credit, many of the traditional funding sources would not be valid options. Most banks and mortgage companies do not offer mortgage loan programs for individuals with low credit scores. Fortunately, in the world of private money lenders, a Hard Money Bridge Loan is a perfect option to receive funding and even fix your credit score.
There are so many loans out there and many of them heavily base whether or not they will give someone a loan based on their credit score. Thankfully, this isn’t true for Hard Money Loans.
What are the Requirements for a Hard Money Bridge Loan?
A Hard Money Loan is based on your assets not on your FICO score. You still need to provide a credit score but there is no minimum FICO score for the borrower. Instead, hard money lenders focus on the Loan-to-Value (LTV) of the asset. These loans don't have a lot of underwriting as well so there is no need to worry about bankruptcies, foreclosures, collections, etc. They are usually capped at 65% LTV or less, with rates ranging from 9.00%-11.99%, and are always a 12-24 months bridge loan. True Hard Money Loans are never term loans.
Like previously mentioned, there is a focus on assets and equity rather than credit. It is possible to look past the bad credit, past foreclosures and bankruptcies, if there’s enough equity in the property and the borrower can repay the loan. There is more of a focus on the value of the property. For these loans, the financial checks are less rigorous and quicker than traditional loans. Hard money lenders don’t have to abide by the same rules and guidelines that more traditional bank loan lenders have to conform to. Thus, a Hard Money Bridge Loan can be approved at a much faster speed. A traditional bank loan could take 45-90 days but with a direct private money lender a Hard Money Loan can be funded within two weeks.
Due to the quick turnaround time and less surface level financial requirements, there is more risk being taken by the lender. Therefore, the repayment periods are significantly shorter than traditional loans. While a traditional loan may have a repayment period closer to 20-30 years, a Hard Money Bridge Loan needs to be repaid in just several years. So if a borrower has bad credit, the lender is taking a larger risk and therefore wants the money repaid in a shorter time frame.
How to Fix Your Credit Score with a Private Lender?
Unlike a term loan, which requires a minimum of a 650 credit score, a true Hard Money Bridge Loan does not have a minimum credit score requirement and can even fix your credit score.
If you are a real estate investor that owns an investment property with a significant amount of equity (more than 50%), you can utilize a Hard Money Bridge Loan, take the cash out and use it to pay off debts or clean your credit.
After your credit score is above 650, you can return to the private money lender and apply for a term loan (ex. no documentation loan).
How can you apply for a Bridge Loan?
Hard Money Bridge Loans are for investment properties only, due to predatory lending and high-cost regulations. If you’re looking for an owner-occupied property, then you are not eligible for a Hard Money Bridge Loan.
Some states also have non-judicial foreclosure laws, which were made because of the high risks. These laws protect the lenders and thus make them more comfortable funding these high-risk loans since these loans are not sold on the secondary market and the lender holds the note. Additionally, these types of loans with low FICO scores are not eligible in rural areas.
