If you have damaged credit and want to get a home loan you have options available to you.
Traditional bank home loans are fully dependent upon the borrower’s credit-worthiness and income to qualify for the loan. Hard money lenders, on the other hand, take a different approach. These lenders base their lending decision on the value of the property. Hard money lenders are willing to take risks on people who have made financial mistakes in the past.
A hard money lender is a private individual or corporation that is not affiliated with a traditional lending institution– such as a bank or credit union. Hard money lenders use the purchased property as collateral; meaning in the event the borrower defaults on their payment, the hard money lender takes back the property and resells it to another buyer. To the hard money lender, the value of the property is more important that your financial situation.
Hard money loans are terrific for borrowers with bad credit. This goes for borrowers with low credit scores, bankruptcies and foreclosures. Generally speaking, hard money loans have shorter terms– three to five years at most. However, today there are lenders who will grant longer loan terms. Because these rates are higher than a conventional mortgage borrowers won’t want to stay in a hard money loan for a long period of time. They are perfect for borrowers that will be able to work on their credit and then transition into a traditional loan.
Why would borrowers with bad credit want to use these loans? Hard money loans have quick approval. Because the lender is concerned about the value in the property versus the financial situation of the borrower these loans are typically closed within a week. If a borrower continues to work with the same hard money lender, closing time can become even quicker. Because hard money lenders don’t have the same underwriting process as banks and look at each deal on an individual basis they can be more flexible. Borrowers are typically able to change the payment schedule and loan terms. These are individual lenders or small companies so there is room for them to be more flexible and negotiate. It is important that potential borrowers know they will most likely not be approved for 100% of the property value. In fact, most hard money lenders don’t lend more than 70% of the property value. A borrower must be prepared to put down 30%. Putting cash down protects the lender in case of a default. Lending to people with bad credit is a significant risk for lenders.
Hard money lenders give borrowers with bad credit an opportunity to buy property while helping raise their credit score.
Yes, borrowers will have a higher interest rate when taking out a hard money loan. However, if they want to own their home this is about the only way to get financed. The other choice is to continue throwing their money down the toilet on the first of each month while paying rent. Hard money lenders give people with damaged credit a chance to build their credit and own their home.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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