Private Money Loans with Bad Credit for Real Estate Investors

Private Money Loans With Credit: Can Real Estate Investors Still Get Approved?

Real estate investors with bad credit can still get private money loans. This happens if the property is valuable, has equity, and there’s a clear plan to repay the loan. Private money lenders focus more on the property deal than the borrower’s credit score. That’s why private money loans are popular among investors who can’t get bank loans.
Private money loans work differently from mortgage loans. Traditional mortgages rely heavily on credit score, income, tax returns, and debt-to-income ratio. Private money loans focus on the property’s value, the loan-to-value ratio, and the investor’s repayment plan.

Private money loans, also called money loans, are often used for short-term real estate projects. These include fix-and-flip projects, buying properties, bridge loans, and properties that need repairs. These loans can be approved faster than traditional loans, but they have higher interest rates, more fees, and shorter repayment periods.

• Private money loans are commonly used by investors.
• They help investors who need money quickly.
• The loans are based on the property.
• The property’s value is key.
• Investors use money loans, for various projects.
• They include fix-and-flip and rental property deals.

What Are Private Money Loans for Real Estate Investors?

Private money loans are loans for estate that come from private lenders not from banks. These lenders can be individuals, groups or private companies. They lend money to real estate investors to buy or refinance properties.

• These loans are usually secured by the property itself.

For real estate investors private money loans can be helpful when a property does not meet the standards of lenders. This can happen if the property needs a lot of repairs has title issues or needs to be bought. Private lenders look at things before lending money. They want to know the value of the property after repairs the purchase price, the budget for renovations the investors experience and their plan for selling the property. They want to make sure the deal makes sense and that there is value in the property to protect their loan.

Why Bad Credit Is Not Always a Problem with Private Money Loans

Having credit can make it hard to get a traditional loan.. It does not always stop you from getting a private money loan. Many private lenders know that real estate investors may have credit problems. These problems can come from business losses late payments or high credit card debt.

• Private lenders focus more on the property than on credit.
• A good deal on a property can sometimes make up for credit.

For example if an investor is buying a property at a price and has a good plan for fixing it up the lender may feel comfortable lending the money.  However bad credit still matters. If you have a credit score you may have to make a bigger, down payment pay a higher interest rate or pay more fees. Some lenders may also want proof that you have fixed credit problems.

How Private Money Lenders Review Borrowers with Bad Credit

Private money lenders have rules. Each lender is okay with taking on levels of risk. Some lenders do not mind lending to borrowers with credit if the property is worth a lot. Others want a credit score proof that the borrower has money or experience investing in properties.

The Property Value is Important

The lender wants to know how much the property is worth now and how much it will be worth after repairs. If the purchase price is low compared to the propertys value the lender may like the deal. If the numbers do not add up the lender may want money down.

The Exit Strategy Must Make Sense

A private money lender wants to know how the loan will be paid back. The investor may plan to sell the property after repairs. They may refinance into a different type of loan. They may also use income to pay for long-term financing. A weak plan for paying back the loan can cause problems. If the investor cannot sell or refinance the property the private money loan can become expensive fast. Borrowers, with credit and a weak plan may struggle.

Investor Experience Helps

Experienced investors may have a time getting approved. This is because they can show projects, completed repairs, rental history or proof they understand repair budgets. New investors can still qualify.. They may need more money down a stronger property or a detailed plan.

Having Enough Money is Important

when credit is bad lenders want to see that the investor has enough funds. They want to know the investor can close the deal make payments, cover repairs and handle costs. Running out of cash during a rehab project can put the deal at risk. Lenders want to make sure borrowers have money to see the project through.

Private Money Loan Requirements With Credit

The requirements for money loans are different for each lender and they depend on the type of property and how good the deal is. Lenders look at the price of the property how much it is worth what it will be worth after repairs the payment, the borrowers credit history, how much money they have saved, insurance, title and the investors plan.
If you have credit the lender will probably ask you some tough questions. They want to know why your credit score is bad if it was because of one mistake and if you have money to finish the project. Private money lenders might say yes to deals that banks say no to. This is not free money. The deal still has to be an one.

Benefits of Private Money Loans for Bad Credit Investors

money loans can help investors when they cannot get a loan from a bank. The best thing about money loans is that they are flexible. A private lender might say yes to a loan based on the property deal not your credit score.
Another good thing is that private money lenders can work fast. They can close a deal faster than a bank because they do not have many steps to go through. This helps investors buy properties quickly.
Private money loans can also help investors buy properties that need repairs. Banks often do not want to lend money for properties that are damaged. Private money lenders might be more willing to lend money for properties that need to be fixed.

Who Should Consider a Money Loan With Bad Credit?

A private money loan might be an idea for a real estate investor who finds a great deal but cannot get a loan from a bank. It might also work for investors who need to close a deal are buying a property that needs repairs or plan to fix and sell the property.

This loan is not an idea for investors who do not have any money saved no plan for repairs no contractor, no way to get out of the deal or no way to make a profit. Private money loans are a tool. They should only be used when the numbers make sense for the deal. Private money loans are not for everyone. They can be helpful, for private money loan investors who know what they are doing. Private money loan investors should be careful. Make sure they understand the private money loan before they sign anything.

Private Money versus Traditional Commercial Loans

Hard Money and Private Money Lenders are Focused More on the Asset Than the Borrower:

• Banks and traditional commercial lenders are concerned about the borrower and the property
• Will not lend if the borrower has bad credit

Private and Hard Money Lenders Do Care About Borrower’s Credit Scores and Credit Payment History:

• But still lend to real estate investors with bad credit
• Bad credit borrowers may get charged more in points and get higher interest rates due to their poor credit but they can still qualify for private money loans

Underwriting and Focusing More on Collateral versus Borrower

The answer to Qualifying for Private Money Loans with Bad Credit is simple:

• Most of the time yes
• Private and Hard Money Lenders weigh most of their credit decisions more than equity than the borrower
• If a real estate investor has a lot of equity or putting a large amount of down payment on their investment property purchase, the less risk the private money lender has
• Most private and hard money lenders are not too much concerned with the credit, credit scores, and income of borrowers
• More focused on the particular property and down payment/equity

However, Private Money Lenders will Review the Borrowers’ Credit Reports:

• Will take the borrower’s credit and credit scores into consideration

The Higher the Credit Score, the Less Risk the Borrower Has for the Lenders

Here is What is Most Likely to Happen if the Borrower’s Credit is Horrible:

• The lender is probably going to reduce the LTV or loan to value they will lend on the property
• This means the more down payment to have a lower loan to value

The lender may charge more points and charge a higher rate if the borrower’s credit scores are lower.

Getting Denied By Bank

Just so You Completely Understand Here is a Good Example:

• Joe the borrower has a mixed-use commercial property on the south side of Chicago
• It is free and clear
• He has not had a mortgage on it for 10 years
• Now he has an opportunity to buy the building next door really cheap
• Joe was laid off from his job for 6 months last year
• Is behind on every bill except his Harley Davidson
• Plus, he has 5 medical charge off credit accounts, and a judgment for $15,000 from his ex-wife’s divorce lawyer
• He went to his bank; he got a free pen because he forgot to return it
• He didn’t get any cash
• No mortgage for Joe

Getting Approved with Private Money Lender

Many People Who Get Denied by Banks and Traditional Commercial Lenders, Turn to Private Money Lenders:

• His Private Money Lender Dan at Gustan Cho Associates Commercial Lending Division this time gave him a loan for 50% of what his building was worth
• His building was worth $200,000
• Dan issued an LOI or letter of intent for $100,000
• He had to pay off the judgment
• This is because it was recorded on the title of his building:
• But Joe walked away with roughly $85,000 minus costs
• Joe bought the building and had enough money to fix it up
• He sold it 60 days after he fixed, and for $200,000 and paid off his Private Money Loan

A Private Money or Hard Money Lender might have issued an LOI for more money. However, this is a good example of a real-life situation. I did protect the borrower’s name, but there really is a Dan.

Case Scenario on Private Money Loans with Bad Credit

Here is Another Quick Example:

• Jan the borrower really needs cash to catch up on her real estate taxes
• Needs to fix up the single-family house she inherited from her mother
• The mortgage is only $20,000, and the house is worth around $100,000 as is
• She has a contractor bid for $30,000
• So she needs at least $50,000
• But she also has a car payment that is $600 a month
• She only needs $10,000 to pay that car off
• Her credit isn’t that bad
• She has paid all her bills on time for the last year
• But she just got out of bankruptcy 3 weeks ago
• Ironically, she has a good credit score
• Good for a Private or Hard Money lender is 580 FICO
• For your bank, that score is good for the free pen
• She really needs about 60% of what her house is worth
• Well, that’s possible
• She plans on fixing up and selling the house anyway
• The Hard Money Lender looks at this client and thinks she has a lot of equity, and she can’t file bankruptcy again for 7 years
• What is the risk?
• The risk is she doesn’t make payment
• She is selling the property anyway
• The Private Money Lender looks at this:
• Simply assumes the client might not make all the payment
• However, she has demonstrated some ability to repay
• They make the loan

What is important to remember here is the loan has to make sense. You are going to pay a higher rate of 12-18%. Is it going to be worth it to you, and worth the risk to the Private or Hard Money Lender?

Even if your Credit is Horrible, you can get a Private or Hard Money Mortgage and the cash you need out of your investment single family, 1-4 unit, or commercial property.

Qualifying For Private Money Loans with Bad Credit And No Income Documentation Required

Gustan Cho Associates are experts in the following areas of lending:

• Hard Money Loans 
• Commercial Loans
• Fix And Flip Rehab Loans
• Rental Property Financing And Investment Property Loans
• FHA, VA, USDA, Conventional Loans with no lender overlays
• Jumbo Loans
• Alternative Financing For Jumbo Loans

For more information on Private Money loans with bad credit or Hard Money Loans, please contact Gustan Cho Associates at 800-900-8569.  Or email us at gcho@gustancho.com.