Hard Money Loans 101: How Does Your Credit Score Affect Them?
Hard money loans are typically issued by private investors or companies rather than banks. That means that the standards for approving a loan are often different and may be more flexible.
If you're considering a hard money loan, you might wonder how your credit score will affect the process. Here's a quick overview of what you need to know.
Why Should You Consider a Hard Money Loan?
There are a few advantages to applying for a hard money loan over a traditional loan.
1. Hard Money Loans Are Easier to Obtain than Traditional Loans
If you're looking for financing for your investment property, you may have difficulty qualifying for a traditional loan. Banks and other conventional lenders typically require a good credit score, a down payment, and proof of income. However, the requirements are much less strict with a hard money loan. Hard money lenders are more interested in the value of the financed property than the borrower's credit history. As a result, it's much easier to qualify for a hard money loan.
2. Hard Money Loans Are Asset-Based
Another advantage of hard money loans is that they are asset-based. This means that the loan is based on the value of the financed property rather than the borrower's credit history. This makes hard money loans less risky for lenders, and as a result, they are often willing to provide financing for properties that traditional lenders would not finance.
3. Hard Money Loans Can Be Used to Buy Properties
Hard money loans can also be used to buy properties. If you're looking for a property to invest in but don't have the cash to buy it outright, a hard money loan can be a great option. With a hard money loan, you can finance the purchase of the property and any repairs or renovations that may be needed. This can be a great way to get started in real estate investing without having to come up with a large amount of cash upfront.
How Important Is Your FICO Score to Hard Money Loan?
Your FICO score is one of the most critical factors in determining whether or not you will qualify for a hard money loan. Hard money lenders use this score to determine your creditworthiness and whether or not to lend you money.
A high FICO score means you're a low-risk borrower, which is good news for hard money lenders. It means you'll likely repay your loan on time and in full. On the other hand, a low FICO score indicates you're a high-risk borrower, which means the lender may be less likely to lend you money or may charge you a higher interest rate.
Hard money lenders typically require a minimum FICO score of 640, although some may go as low as 600. If your score is below this, you may still be able to qualify for a loan, but you may have to pay a higher interest rate.
Will Hard Money Loans Be Reported to the Credit Bureaus?
The answer to this question is complicated and depends on several factors.
However, hard money loans are not typically reported to the credit bureaus. This is because hard money loans are generally short-term loans, and lenders don’t typically report short-term loans to credit bureaus.
Also, hard money loans are often used by borrowers with poor credit, and lenders don’t want to risk tarnishing their reputation by reporting loans to credit bureaus that are likely to default.
That said, there are some exceptions to this rule. Some hard money lenders do report loans to the credit bureaus, and some borrowers with good credit may be able to get a hard money loan that is reported to the credit bureaus.
Final Thoughts
Hard money loans are an excellent option for those with less-than-perfect credit scores. However, your credit score can still affect the terms of your loan. A higher credit score may give you access to better loan terms, while a lower score could mean higher interest rates and fees.
If you’re considering a hard money loan in Florida, contact us at Jaken Finance Group. We offer funding solutions beyond what traditional lenders can offer. Get a free quote by scheduling a call today!