Since they don’t require a minimum credit score, hard money loans are the best way to fund your flip. Traditional real estate loans base their lending criteria on the borrower’s personal ability to repay the loan. They measure this ability by items such as personal earnings, debt to income ratio, and of course, your credit score. These items are intangible or “soft” assets. Hard money loans, on the other hand, base their criteria on the value of the property, or a “hard” asset. Therefore, having a bad credit score should never keep you from loan approval. This loan covers 70% of the ARV (after-repair value) of a property.
Though a poor credit score won’t keep you from loan approval, it does make the points and interest of a hard money loan a little higher. For example, clients of Do Hard Money with poor credit pay 6.5% in points rather than 5.5%. They also pay 1.5% interest per month instead of 1.25% (reserved for credit scores of 680 or higher).
Another obstacle you may run into is the hard money loan not covering all of the costs. As we discussed in the previous step, if you have a phenomenal deal which qualifies for 100% financing, you won’t have to worry about any cash-to-close or other gaps in financing. However, what happens if you bring a good deal to the table but the hard money loan can’t cover every expense? Remember, only 70% of the ARV is funded. If cash-to-close or other costs are required, you will need to get that extra money from somewhere.
Unfortunately, gap financing and an unsecured business line of credit are not viable options for those with poor credit. However, there is another excellent source of income of which you can take advantage and make your profitable deal happen! Just read on to Step 3…
How do you wholesale without using your own money? Do Hard Money can easily help. We have an entry-level solution for those wanting to break into fix-and-flip investments called Partner-with-a-Pro. To learn more or take advantage of Partner-with-a-Pro, click here.