How to Get a Hard Money Loan with Bad Credit

Getting bad credit hard money loans may seem difficult, but it is not impossible. Hard money lenders offer loans for bad credit borrowers. The rates and fees with these types of loans tend to be higher, so it is important to know the financial impact of these loan programs. Here are a few things to consider about a bad credit hard money loan.

Involve a Cosigner

The best way to get around your bad credit is to get a cosigner. When you use a cosigner, the lender is going to look at their good credit instead of yours. Therefore, they will be much more likely to do the deal for you as a result. They will base the interest rate on the relative risk that they feel they are taking on. This means that the interest rate will most likely be lower as well. Find a cosigner that can help you, with a healthy credit history and you will see that it will do wonders for your approval.

Buy a High Value Property

Many hard money lenders pay more attention to the property that you plan on buying than they do to your personal or business credit history. In that case, they are going to want to know everything about the property and what you plan on doing with it. Hard money lenders know that there is a high risk of default when they take on a loan. Therefore, they only want to get involved with deals that they know there is a good chance that they can get their money back. When they help you buy a good property that is in high demand, there is a much better chance that they can sell the property upon default of the loan. Therefore, they do not feel as reluctant to give you the loan that you need even if your credit is not that good.

Take a Low Loan-to-Value

When you have bad credit and want to work with a hard money lender, you will need to be prepared to take a low loan-to-value ratio for the loan. This means that you will have to come up with more cash out of your own pocket in order to get financing. You can save the money or you can try to get it from another type of financing. It is very common for lenders to offer 50% of the money that you need, especially after evaluating your credit and the risk that is tied with it. When they give you a low loan-to-value ratio like this, it lessens their risk considerably.

For example, let's say that you are using the money to buy a property for $200,000. The lender will give you $100,000 and have a right to foreclose on the property upon default. Even if the value of the property value falls dramatically, they know that they can at least sell the property for $100,000, and get their money back. This provides them with the potential to make a significant return on their investment, or at the worst case, they will at least get their initial investment back.