What Is a Hard Money Lender?
So you’re interested in getting a hard money loan to flip a house or invest in real estate, but you’re worried your credit score isn’t quite up to par. Don’t sweat it – a Denver hard money lender actually cares a lot less about your credit score than traditional banks. Hard money lenders are private investors and companies that provide short-term, asset-based loans. They focus much more on the property itself as collateral rather than your personal credit history. While they will still likely check your credit as part of their due diligence, a lower score doesn’t necessarily disqualify you from getting approved for a hard money loan. The property value, your experience with real estate, and your exit strategy are usually much more important factors in their lending decision.
How Do Hard Money Lenders in Denver Use Credit Scores?
Hard money lenders are private lenders who offer short-term real estate loans. Unlike banks, they evaluate loan applications based primarily on the value of the property – not your credit score.
How Hard Money Lenders Use Credit Scores
While credit scores are less important to hard money lenders, they still consider them. Scores below 600 will raise red flags and may lead to higher interest rates or lower loan-to-value ratios. Scores in the 600s are usually okay if you have sufficient collateral. Above 700 is ideal and may qualify you for the best terms.
Some hard money lenders don’t check scores at all, especially if you have a solid track record of real estate experience and the property is in a stable market. However, for most borrowers, credit scores impact:
– Interest rates: Lower scores mean higher rates since you’re deemed higher risk. Each lender has its own rate card based on scores.
– Loan-to-value ratio: With a lower score, a lender may fund a lower percentage of the property value, say 60-70% instead of 75-80%. You’ll need to come up with the rest.
– Reserves requirement: Lenders may require higher cash reserves, often 6-12 months of payments. This provides a safety net in case you default.
– Opportunity to qualify: Very low scores, like below 550, may disqualify you altogether depending on the lender. Each has its own minimum requirements.
So while hard money loans hinge primarily on your collateral, credit scores are still important. The better your scores, the more options you’ll have and the better the terms. If your scores need work, take steps to improve them before applying to maximize your chances of approval and save money.
Tips for Borrowers With Low Credit Scores Applying to Denver Hard Money Lenders
As a hard money lender in Denver, how do we use your credit score? We look at credit scores, but they’re not the only factor. Here’s how it works:
Your credit score gives us an idea of how well you’ve managed debt in the past. A higher score, typically over 620, means you’ve made on-time payments and haven’t maxed out your credit cards. That’s a good sign you’ll repay our loan. But we also consider your income, assets, job stability and the property itself.
If your score is lower, say below 600, don’t worry. We understand life happens. What’s most important is that you have a reasonable explanation, like medical bills or job loss, and have since improved your situation. We look at your recent payment history and income to make sure you can afford the loan now.
As private lenders, we have more flexibility than banks. We can work with you even with past credit mistakes. What we can’t work with is an outright inability to repay the loan. So when your score is lower, be prepared to provide details on your income, expenses, assets and the plan to turn things around.
The bottom line? We use your credit score as a starting point but ultimately look at your whole financial picture. Don’t assume a lower score means automatic denial. Explain your situation honestly and work with us on next steps. If the numbers show you can handle the loan, your dream of owning a home or investment property in Denver can still come true. Have hope – where there’s a will, there’s a way!
