How Hard Money Loans Can Benefit Borrowers With Poor Credit

Getting a real estate loan when you have poor credit can be challenging. However, hard money loans are one possible option for borrowers that don’t have excellent credit. The first step is finding a lender specializing in hard money loans and willing to work with borrowers with poor credit. If you want to learn more about the process and the benefits of hard money, just keep reading. 

Contents of This Article:

• Can Borrowers With Poor Credit Get a Hard Money Loan?
• Hard Money Loans vs. Traditional Loans
• Pros and Cons of Hard Money Loans for Borrowers With Poor Credit
• When to Choose a Hard Money Loan
• Why Choose Maryland Hard Money Lenders?

Can Borrowers With Poor Credit Get a Hard Money Loan? 

If you’re looking to get a real estate loan but don’t meet the credit requirements for a traditional mortgage loan, you may seek other options. Hard money is one of the more popular options for investors looking to secure a loan quickly without many requirements. Hard money lenders are usually individuals, investment companies, or businesses that provide private money financing.

A hard money loan could be a good option if you’re looking to secure real estate but don’t meet the credit requirements for a traditional real estate loan. While most hard money lenders also have credit requirements, they hold less weight than the loan’s collateral. This is because most hard money lenders require collateral, like real estate, to secure the loan instead of your credit score and financial status. 

Some hard money lenders still require a minimum credit score, although it’s not as high as traditional lenders. For instance, a hard money lender may require a credit score of 600, while a mortgage lender may require a minimum credit score of 620 or higher. Ultimately, it depends on the type of loan you’re looking for. 

Next, we’ll review some of the differences between hard money loans and traditional loans for borrowers with poor credit. 

Hard Money Loans vs. Traditional Loans

Traditional and hard money loans are two different financing options for investors looking to buy real estate. Traditional mortgage loans are offered by banks and credit unions and usually have strict guidelines. For instance, you generally need a good credit score, a steady income, and a favorable debt-to-income ratio to get a mortgage loan. 

The application process for a traditional mortgage loan is long and time-consuming. For instance, a mortgage loan can take weeks or months to go through and get funded. They also offer longer repayment terms, usually 5 to 30 years. 

On the other hand, hard money loans have fewer requirements and are generally funded much quicker, sometimes within just a few days. Instead of looking at your credit score and financial history, hard money lenders care most about the real estate you’re looking to fund, as that’ll be the collateral for the loan. If you can’t pay the loan, you’ll lose the collateral. 

However, hard money loans usually have higher interest rates and much shorter repayment terms. For instance, the average interest rate for a hard money loan is around 8 to 15%, and you usually have to repay the loan within 12 months to 3 years. 

While you may not be able to get a traditional mortgage loan, some hard money lenders will approve your loan, even if you don’t have excellent credit. Next, we’ll review some of the pros and cons of hard money loans for borrowers with poor credit. 

Pros and Cons of Hard Money Loans for Borrowers With Poor Credit

Hard money loans aren’t right for all borrowers or all investment plans. However, they can be an excellent option for investors looking to secure a real estate loan without meeting the requirements for a traditional loan. They’re also helpful if you’re looking for a quick fix-and-flip investment strategy. That said, there are a few disadvantages to note before applying for a hard money loan. 

Benefits of Hard Money

• Faster Funding- Hard money loans are quickly funded, usually within a few days, making them ideal for investors looking to secure an investment quickly.
• Flexible Financing- Hard money lenders have fewer and less strict requirements than other loan types. As such, you don’t need to be in a perfect financial situation to secure a hard money loan for your investment.
• Easier Approval- Since lenders are most concerned with the value of the collateral you put forth, your creditworthiness generally won’t get in the way of approval.

Disadvantages of Hard Money

• Higher Interest Rates- Although you don’t need a perfect credit score to get a hard money loan, you do need to account for higher interest rates. Your monthly payments for a hard money loan may be much higher than they would be for a traditional mortgage loan.
• Not Suitable for Long-Term Financing- Hard money loans are used for short-term financing, great for fix-and-flip projects. However, if you’re using it for a long-term investment strategy, you’ll need to refinance at the end of your loan term.
• Risk of Losing Collateral- If you can’t pay the loan, you’ll lose the real estate investment you put forth into securing the loan.

When to Choose a Hard Money Loan

If you’re wondering which loan option to choose, a few indicators may make you a good candidate for a hard money loan. 

• Need to Close a Deal Fast- If you need fast financing for a real estate investment, hard money loans are a great option.
• Turned Down By Mortgage Lenders- If you don’t qualify for a mortgage loan or a lender has turned you down, consider applying for a hard money loan.
• Investing in Fix-and-Flip Real Estate- Hard money loans are excellent for certain investment types, like fix-and-flip real estate. Once you’ve completed renovations, you can sell the property and repay the loan immediately.

Why Choose Maryland Hard Money Lenders?

Hard money lenders are an option for borrowers with poor credit. If you’re looking to fund your real estate investment quickly, you can do so with a hard money loan, even if you don’t have excellent credit. As long as you have the correct paperwork, a solid plan for your investment, and a good down payment, you should have no problem getting a hard money loan. 

If you’re looking for a local lender to work with, consider Maryland Hard Money Lenders. We offer hard money loans for several types of investments, whether you’re looking for a single-family rental or a multifamily property loan. Contact us today to learn more about our lending process, or complete a loan application today!