I specialize in hard money loans here in California. With the turmoil in the financial and real estate markets many people are looking for hard money who have not needed it in the past. In addition, people who have used hard money in the past are expecting the requirements to be the same now as they were ten years ago. Today I’m going to take a look at credit requirements for hard money loans.
Perhaps the biggest misconception that people have about hard money loans is that they require no documentation or credit checks on the borrower. It is true that the property is the main factor in qualification, however we do always need paperwork on the borrower, including a credit report. While we do need a credit report in the file, hard money loans are not necessarily credit driven.
The reason we need a credit report in each file is that we want to know with whom we are working with. While poor credit is not typically going to preclude someone from being able to obtain a hard money loan, there are some things that can cause issues. An open bankruptcy is one example. Tax liens are another item that would need to be addressed. A sustained pattern of non-payment on debts may require an explanation. More often than not it is the contents of the credit report, not the credit score itself that we are looking at. In addition, most of the time we are still able to make a loan, we just would like to know the reasons for issues.
These days there are some situations where credit score does play a part in the loan decision. Typically it is not a major role, but someone with excellent credit may be able to obtain slightly more advantageous rates or a more aggressive loan to value. By the same token, someone with major credit issues may end up with a slightly more conservative loan amount.
The reason credit is playing more of a role in hard money loans has a lot to do with the tightened lending of the banks. These days there are many borrowers with great credit who cannot get a loan from a bank for whatever reason. Hard money loans are typically funded by individuals or by groups of investors. When there are multiple loan requests and an investor is choosing where to place his or her money, they are naturally going to gravitate towards a borrower with excellent credit as opposed to poor credit (with all other things being equal). So it comes down to simple supply and demand.
At the end of the day a borrowers credit score is not going to dictate whether or not we can help them with a hard money loan. We will require a credit report, and if there are issues we very well may ask for an explanation. With that being said, however, we work with our clients to help present the best package possible. When credit is not a strength, we look for strength elsewhere. With hard money loans this strength typically comes from equity in the subject property, but there are a number of other factors that could help lend more strength to a file.
If you are in search of a hard money loan here in California, please feel free to give me a call, or visit our hard money site online. Typically speaking we can give you a good idea of what we can do for a particular situation in a 5-10 minute conversation.
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