It's not always possible to obtain a conventional loan with your creditworthiness and your debt-to-income ratio. When this is the case, the asset that you are purchasing may become the basis for your loan when you turn to a hard money lender.
Does My Credit Score Matter?
With a hard money loan, your credit score is still taken into consideration. However, the hard asset is a more important factor. For example, you may be purchasing real estate with the goal of opening a store and the land would serve as collateral for the hard loan.
When a Hard Money Loan is Beneficial
If you will only need a short-term loan, a hard money loan may be the best option to choose. Also, if you will need a bridge loan until you can secure financing from a bank, a hard money loan might make sense. However, it will typically come with a higher interest rate.
A good example of when a hard money loan is necessary is with seasonal flippers. By obtaining hard money loans, you will be able to work on more than one property at once to maximize your profits. This is best for experienced investors.
Enter the Real Estate Investment Market
If you have a poor credit score, you are not necessarily barred from investing in real estate. You may be able to use a hard money loan to purchase several rental properties without the need to qualify for a loan from a traditional lender.
Certain types of real estate can be difficult to obtain loans for without a hard money loan. For example, the properties you are purchasing might be vacant or in disrepair. As a result, they might not be qualified for a traditional real estate loan. You may also not have the time to wait for the slow closing process because you intend to fix and flip the property quickly.
Find a Hard Money Lender
There are some individual lenders who will offer hard money loans. However, the best option is often to turn to a business that is specialized in hard money loans. They will be more capable of extending enough credit to where you will be able to purchase all of the properties you need to achieve your financial goals.
Real estate investing is one of the most effective ways to grow your wealth. With hard money loans, you are able to grow your wealth more rapidly.
