Tag Archive for: #credit score

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How Does Your Credit Score Impact Your Cash Flow?

Rates and cash flow depend on your credit score. Here’s just how much:

Let’s look at an example with real numbers to get a picture of just how seriously your can credit score impact cash flow on your real estate investments.

Comparing Interest Rates

Pretend you have a $300,000 loan. And you were able to get a 6% interest rate – a normal rate for today. Your monthly payment would be around $1,800.

But, for every 10 to 20 points your credit score lowers, your rate increases. This raises your monthly payments by $100 to $200.

So with a low score, you’d only be able to get a 9% rate on that $300,000 loan. You’d be giving $615 every month straight to the bank. That’s money other investors will be able to use to re-invest.

Chart showing your interest payment depending on your rate for a $300,000 loan

Interest Rates Over the Life of the Loan

This interest story gets worse when we consider the full life of the loan.

The person with a 6.5% interest rate pays a little under $1,200 per year in interest, or around $35,000 for the full 30-year loan.

The person with 9% pays over $7,300 yearly, and over $221,000 over the course of the loan!

Chart showing your yearly and 30-year interest payments depending on your rate for a $300,000 loan

We can take this example out further.

Let’s say we have a portfolio of 10 properties, not just one, each with $300,000 loans.

At 6.5%, you’ll spend almost $350,000 over 30 years between the interest of all the loans. At 9%, you’d pay $73,800 per year on interest alone for your portfolio. As a result, you’d shell out a grand total of $2.2 million in interest in 30 years.

Chart showing your total interest payments over the life of 10 $300,000 loans, depending on your rate.

Cash Flow & Credit Score Conclusion

As you can see, a low credit score is a major disadvantage. Properties that would cash flow for someone else, won’t for you. Your debt-to-income could disqualify you for DSCR loans. Your score itself can disqualify you for many other loans.

Look at the impact of your credit score on cash flow. Keep more money to do what you love and give less to the banks in the form of interest.

Above all other investment goals: raise your credit score.

If you need to work with a credit specialist to get everything in line, it’ll be worth your time. Do it ASAP – now is the time to get prepared as a real estate investor. Because in 2023, prices will come down, and you don’t want to miss those opportunities.

Read the full article here.

Watch the video here:

The Ultimate Guide To Credit During a Recession

Take a peek behind the curtain at what your loan officers know about credit during a recession.

One thing’s for certain with the oncoming recession in 2022: your credit score will change everything for your real estate investment career. 

Lenders are changing all loan rates and requirements. Loan amounts are down. Interest rates are up.

In inflationary times, central banks tighten money by raising federal interest rates in an attempt to reduce inflation. Lenders and brokers get a new set of rules they have to abide by during a recession. 

Let’s look at some examples of the “new rules” loan officers and underwriters are looking at. We’ll see what credit score you need, and how your credit will impact the type of loan you can get.

Credit’s Impact on Loans for Real Estate Investing During a Recession: The Charts

Loan officers look at a scale while pricing out a loan. They get this chart from the underwriters, and this becomes the basis for the loan.

These scales show the LTVs and interest rates an investor could get based on their credit score.

National Hard Money Lender Credit Chart During a Recession

Here’s an example of a scale for a national hard money lender:

Chart showing the interest rates you'd get with different LTVs at different credit scores.

A minimum acceptable credit score used to be 620. Now it’s 680. So now, from this hard money lender, anyone with a credit score from 620 to 679 no longer has an option.

LTVs have also taken a drive. Most lenders used to lend up to 90% of the cost of the property or ARV. Now, you’d be lucky to get 80%.

Rates are now sitting around 10%+. When LTVs were at 90%, the rates were in the mid-7s. This means rates have gone up almost 3% – just over the last 6 months.

There’s less money available in general. To get a piece of what little there is, you’ll need to maintain a higher credit score than before. Your credit has a deep impact on your loan options.

Traditional Bank Lenders Recession Credit Scale Example

Now let’s take a look at the traditional side, with longer-term loans:

Chart showing what credit scores and LTVs have no loans available.

This chart uses basis points. It equals to about .25%-.5% higher rate for the lower credit ranges/higher LTVs.

You can see that this traditional lender has also eliminated all options for anyone under a 680 credit score. In the recent past, a score of 640 to 679 could get you something, you’d just have to pay more. Now, you don’t even have options in that range.

Credit score matters if you want the best rate – or any leverage at all!

DSCR Loan Credit Requirements in a Recession

Lastly, let’s take a look at an example from a DSCR lender:

Chart showing which credit scores have no DSCR loans available.

Again, over the last 2-3 months, this lender has eliminated anything below a 680 score for a DSCR loan. 

For this DSCR, between a 680 and a 760, there’s a 1.125 point higher difference in rate for origination.

To get cheaper money during a recession takes a great credit score. To get any money at all takes a good one.

How Does Your Credit Impact Your Cash Flow and Deal Flow?

We’ve gone over a behind-the-scenes look at the grid of requirements from underwriters and lenders…

But how does it all affect you in practice? How does it impact your money coming in and money going out?

Lower Score, Higher Down Payments, Higher Interest

For credit scores below 680, if you can even get a loan, you can expect to put in 5-15%+ more than usual. 

Hard money loans that used to require 10% down at 680, now need up to 25%. So on a $200,000 deal, you’d now have to come up with $50,000.

More money into each deal means fewer deals (deal flow) and more money out-of-pocket (cash flow). To combat this, you may need to look into something like gap funding.

Additionally, you’ll be paying more in interest on your BRRRR rentals and flips. When a fix-and-flip has higher interest, your margins come down. When a BRRRR has higher interest, your cash flow comes down.

Focus on your credit. Your credit score has a direct relationship with your profits. A low score means more money is going out and less is coming in on your investments. A high score means less money is going out and more is coming in.

Example of Credit Score’s Impact on Rates and Cash Flow in a Recession

Let’s look at an example with real numbers to get a picture of just how seriously your credit score impacts cash flow on your real estate investments.

Comparing Interest Rates

Pretend you have a $300,000 loan. And say you were able to get a 6% interest rate – a normal rate for today. Your monthly payment is around $1,800.

Now, for every 10 to 20 points your credit score lowers, your rate increases. This increases your monthly payments by $100 to $200.

So with a low score, you’d only be able to get a 9% rate on that $300,000 loan. You’d be giving $615 every month straight to the bank. That’s money other investors will be able to use to re-invest.

Chart showing your interest payment depending on your rate for a $300,000 loan

Interest Rates Over the Life of the Loan

This interest story gets worse when we consider the full life of the loan.

The person with a 6.5% interest rate pays a little under $1,200 per year in interest, or around $35,000 for the full 30-year loan. 

The person with 9% pays over $7,300 yearly, and over $221,000 over the course of the loan!

Chart showing your yearly and 30-year interest payments depending on your rate for a $300,000 loan

We can take this example out further. 

Let’s say we have a portfolio of 10 properties, not just one. Ten properties, each with $300,000 loans. 

At 6.5%, you’ll spend almost $350,000 over 30 years between the interest of all the loans. At 9%, you shell out over $2.2 million in interest in 30 years.

Chart showing your total interest payments over the life of 10 $300,000 loans, depending on your rate.

Cash Flow Conclusion

A low credit score is a major disadvantage. Properties that would cash flow for someone else, won’t for you. Your debt-to-income could disqualify you for DSCR loans. Your score itself can disqualify you for many other loans.

Look at the impact of your credit score. Keep more money to do what you love and give less to the banks in the form of interest.

If you need to work with a credit specialist to get everything in line, it’ll be worth your time. Do it ASAP – now is the time to get prepared as a real estate investor. Because in 2023, prices will come down, and you don’t want to miss those opportunities.

Loan Options for Real Estate Investors with Bad Credit in a Recession

If you have bad credit, what are your options during a recession?

Understand Your Limitations

The products available to you with a bad score are 10% of what’s available to someone with a 700+ score. Understand the following limitations:

  • You’ll have to shop around more
  • You’ll pay more in down payments with LTVs 10-15% lower than other investors
  • You’ll pay 1-3% higher interest rates.
  • The question is no longer, “Do I want to do this deal?” but “Can I do a deal?”

Look at Unique Financing Opportunities

You may be able to look at unique ways to finance properties.

Subject tos or owner carries don’t look at your credit score. These deals don’t directly involve a lender or have an underwriting process – an owner just needs you to come in and take over payments. 

A unique opportunity like this can keep the ball rolling for your investment career while you raise your credit score.

No Substitute for a Good Score

As you saw before, some people would have to pay $2 million+ dollars extra on their portfolio, just because they didn’t take care of their credit.

You can look into other options, like subject tos, owner carries, and OPM, but first and foremost, focus on getting your credit score in the 700s.

How to Improve Your Score Quickly

There are a couple quick ways to improve your credit, depending on why your score is low.

  1. If high balances are your problem:

Many real estate flippers use their credit cards a lot, so they over-leverage everything. High balances impact 30% of your credit score. 

Try using private money to fix this problem. If you can borrow money from family or friends, use it to pay off your cards. Even just for 60 days, it can bump your score up because your usage and balance will go down. 

While your balances are temporarily lowered with private money, you can apply for your loans. Let your lenders know you have that debt, but it won’t impact your credit score for the time being.

  1. If length of credit is your problem:

Get authorized by a family or friend with good credit who will authorize you. You get to use their credit history on yours, which quickly bumps your credit.

Also, if you have a lot of credit cards and want to close one – don’t! Pay it off, then let it sit on your account unused. That history will keep accruing on your credit report, and it increases your available credit balance while lowering your usage.

  1. If your problem comes down to bad habits:

To be a real estate investor, you have to build good financial habits to build a solid foundation for your credit score. No way around it.

  1. If you’ve never been educated on credit:

More Tips to Raise Your Credit During a Recession

Download our free credit score checklist to start getting on top of your credit.

If you want more information about your credit score, you can watch these credit videos, or find other credit blogs on our website.

And if you have any lingering questions about credit and how it could impact your real estate leverage, reach out to us at HardMoneyMike.com.

Happy Investing.

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Do Hard Money Lenders Check Credit?

A question for many beginner investors is: “Do hard money lenders check credit?”

The answer? Yes and no.

In the hard money lending world, there’s a big split in lenders’ approach to credit scores.

National Hard Money Lenders and Credit

On one hand, there’s the national lenders, the big hedge funds, the major institutions. For them, it’s all about credit and experience.

You end up being a number to these bigger companies – a data point. So they focus on the numbers that represent your success. The most important of these numbers is your credit score.

The larger the institution, the smaller the box they need you to fit in. So if you’re looking for money and your credit is below 680, you probably won’t fit in the box of national hard money lenders.

Local Hard Money Lenders

On the other hand, there’s smaller, local hard money companies. These local hard money lenders won’t check credit as the basis for the loan.

Most local hard money lenders look at you and your deal. They’ll want to know:

to see whether you have a good chance of making money from the deal.

If you’re investing while your credit score is lower, gear yourself toward these local lenders. There are plenty of these hard money lenders around – hundreds in the Denver market alone!

Read the full article here.

Watch the video here:

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What Credit Score Do I Need to Invest in Real Estate? (And What If I Don’t Have It?)

What do you need to do to invest in real estate with a low credit score?

60% of the calls we gotten in 20+ years in real estate lending involve the question:

“What credit score do I need to invest?”

And unfortunately, there are a lot of beginner investors out there who need to work on their credit. But until they increase their credit score, how can they get money to start their real estate career?

Right now is a great opportunity to start. A good credit score is crucial to take advantage of the kind of market we haven’t seen for twelve years.

The credit score you need to invest in real estate depends on who you’re getting money from. Let’s take a look at some of your funding options with different credit scores.

Do Hard Money Lenders Check Credit?

First of all, a question for many beginner investors is: “Do hard money lenders check credit?”

Yes and no.

In the hard money lending world, there’s a big split in lenders’ approach to credit scores.

National Hard Money Lenders – Credit Scores to Invest in Real Estate

On one side, there’s the national lenders, the big hedge funds, the major institutions. For them, it’s all about credit and experience. 

You end up being a number to these bigger companies – a data point. So they focus on the numbers that represent your success. The most important of these numbers is your credit score.

The larger the institution, the smaller the box they need you to fit in. So if you’re looking for money and your credit is below 680, you probably won’t fit in the box of national hard money lenders.

Local Hard Money Lenders and Credit

On the other side, there’s smaller, local hard money companies. These local lenders won’t base their loans on your credit score.

Most local hard money lenders look at you and your deal. They’ll want to know:

to see whether you have a good chance of making money from the deal.

If you’re investing while your credit score is lower, gear yourself toward these local lenders. There are plenty of these hard money lenders around – hundreds in the Denver market alone!

What Do Hard Money Lenders Require?

Most local hard money lenders won’t credit check, but they will look at a few other things.

What do they look for? How do you know if you’re the type of person they want to lend money to?

What Hard Money Lenders Generally Require

Local hard money lenders look at a combination of information about you:

  • Your experience
  • Whether you’ve done flips or rental properties before
  • The success of your past investments
  • How many you’ve done in the past three to five years

And if you’re new to investing, lenders will want to see that you’re working with people – realtors, contractors, etc. – who do have good real estate investment experience.

Cash Requirements By Hard Money Lenders

Hard money lenders will also require some cash.

It might be 10-20% down. Or maybe your deal is so good they won’t require any money to be put into the property. Either way, most lenders will still want to see that you have a little cash accumulated.

This backup money is considered reserves. If an unexpected rehab cost comes up, your lender will want to be sure you could cover it.

Also, the lender will simply want to ensure that you can make your payments. They want to build a great relationship with their clients, which starts with choosing investors that will make the process smooth.

All small lenders want is to lend money, then get it back with interest. If you can prove you can make that process happen as simply as possible, any local lender would be happy to work with you.

Credit Score Requirements to Invest in Real Estate with Local Hard Money

Local hard money lenders might not require your credit score, but they’ll still check your credit.

Your credit report will give them an idea of your financial habits – who they’d be getting into a money relationship with. They’re mainly looking for a history of bankruptcy, foreclosure, or lack of payments.

Why don’t local hard money lenders require credit scores? Real estate investors are credit-dependent in a credit-driven industry. A lot of our clients use credit cards to cover the cost of flipping. These high card balances result in real estate investors tending to have lower credit scores.

How to Find Loans for Fix-and-Flips and BRRRRs

As an investor looking for money for a fix-and-flip, you might be getting squeezed out by rising credit score requirements. As the economy changes and lenders get tighter: Who do you reach out to? How do you get loans for fix and flips?

If your credit score is outside of the current credit score requirements for lenders, here are some tips on how to find loans for fix-and-flips.

Local Hard Money Lenders and OPM for Fix-and-Flip Loans

As we mentioned, local hard money lenders will be the most likely to get you real estate investment loans under current credit conditions.

But there’s another major way we recommend to fund your fix and flips, especially during this market: OPM.

Real, average people who want a better return on their money than they’d get with bonds or stocks will be willing to lend to you during this time. If you can show people you can secure their money, they’re likely to lend to you.

BRRRR with Low Credit Score to Invest in Real Estate

Typically, when you buy an undermarket rental, you use two loans: a hard money loan and a long-term refinance loan. If your credit score isn’t where it needs to be for banks, you’ll need to look into OPM for the longer term loan.

You could still get bank loans with a low credit score, but they’ll likely have higher down payments.

If a 720 score could get a loan that requires 20% down, a 640 score might only get you a loan if you can bring in 40%. OPM can cover that down payment cost, or any other gap in funding for a BRRRR or fix-and-flip loan.

Other Options Beyond Fix-and-Flips

With rising interest rates and lender requirements, it just might not be the right time for you to do fix-and-flips. What are some other options to focus your investment career on?

Owner carries and subject tos can be a great option in this upcoming market. These are ways to obtain properties without needing to qualify for a loan through a bank. The homeowner either lends you money to take over the property, or keeps the mortgage in their name while you make payments.

Subject tos and owner carries are important options to consider when your credit score to invest is low.

What Is Real Private Money?

We’ve mentioned it several times in this article, and now it’s time to really dig in. What is real OPM? How can you set up and use real private money?

OPM When You Don’t Have the Credit Score to Invest In Real Estate

OPM is a tried-and-true method to get money when you have a bad credit score. It’s fallen out of popularity a bit in the last few years because there had been a lot of money flooding in real estate. With money so easy to get from banks, many investors devalued the power of OPM.

We believe you should always have OPM lenders in your portfolio, but especially in a down market.

What Is Real OPM?

OPM lenders can be family, friends, or other people you may not even know personally. Real private money can come from anyone looking for a better return on a large chunk of money. As long as you take care of someone’s money, you can always find people who want a secured, asset-backed place for their cash.

Once you prove to be a competent investor, you can build strong OPM relationships. It can be as simple as calling up your lender, telling them about a deal, then getting the money exactly when you need it.

Now is a great time to start finding these people. Especially if you don’t have the right credit score to invest in real estate in more traditional ways.

Get The Credit Score You Need To Invest In Real Estate

If you got into investing recently, maybe you’re not quite sure what to do now that lenders have raised credit requirements. You can start by looking at:

  • small private lenders
  • OPM
  • alternative investment methods like subject tos and owner carries.

But your number one goal should always be to raise your credit score. Raising your credit score to invest in real estate will automatically open up options for you, even as things are tightening overall. And the faster, easier, and cheaper you can find the money, the more you can take advantage of the next market.

If you need help getting your credit where it needs to be, check out these videos.

Download this free credit checklist.

Or reach out with your credit or hard money questions at HardMoneyMike.com.

Happy Investing.

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Investing with Bad Credit: How Can You Raise Your Score Fast?

Real estate investing with bad credit is tough. Here’s how you can raise your score.

Loans fuel your real estate investment business. The easier, faster, and cheaper you can get money, the more successful you’ll be. How can you guarantee you’ll get money from lenders easily, fast, and cheap? Having a great credit score is the best place to start. 

But if your credit score isn’t what it should be, how can you succeed?

Why is Your Credit Bad?

First of all, why is your credit bad? Knowing the answer to this question is the key to your investing success.

Who Won’t Succeed in Investing with Bad Credit

Habitual bad credit is a problem. If you’re the type of person who:

  • Doesn’t pay bills because you “don’t want to”
  • Refuses to believe that improving your credit score is important
  • Can’t or won’t keep track of personal finances

…then real estate investment probably isn’t for you.

The money side of investing is huge. If you’re unable to pay attention to the numbers, pay your debts, and prepare your money, you won’t succeed in real estate. And if you aren’t willing to improve your bad credit, it will be nearly impossible to get money to buy properties to begin with.

Who Can Succeed Investing with Bad Credit

However, many people have the potential for a great credit score. But maybe your credit was impacted by a major life event:

  • A divorce
  • Medical bills
  • Lack of credit education

Any number of life events can turn a responsible, willing individual’s credit bad – including never being taught the importance of credit.

Whatever your situation is, now is the time to focus on your credit score. You can come back from any dip in credit if you’re willing to put in the time and effort.

And if you want to invest in real estate, credit is vital. Your credit will either propel you to success, or drag your career down. Let’s get it fixed.

How to Raise Your Credit Score

Improving your credit score is relatively simple – anyone can do it, if they’re willing. All it takes is getting educated, then spending 30 to 90 minutes per week.

It could take you up to six months to bump up your score in the long-term. But if you don’t start now, it’ll keep getting harder to raise it. The best time to start fixing your credit is now.

Lenders look at credit to see how you paid people in the past as a clue to how you’ll pay them in the future.

If your credit is just “dinged up,” there are three quick solutions to improve it.

1. Get Your Credit Balances Down

We often see investors and contractors put all renovation costs of a job on their credit cards – especially for BRRRR projects. They use more and more of their credit, which drags their score lower and lower.

This is a tempting yet dangerous pattern as a BRRRR investor. You put your money into the property from your credit card, which you expect to get back with your refinance. But if your credit score is too low, the refinance might not go as planned. With bad credit, you won’t be able to get the refinancing loan as easily or for as much money as you expected. This will make it harder to pay off the card balances you built up during the rehab.

A tip to get around this problem is to go private. If you can get a private loan that won’t show up on your credit, you can use that money to pay down your balances. 

A better score will give you better rates for your long-term, credit-based financing. A lower credit score could make your loan rate a point or two higher, which could snowball into you paying an extra $50,000 to $70,000 over the life of the loan.

2. Get Authorized 

Another quick fix for a low credit score is using someone else’s good credit to help your bad credit. Find a family member or friend who has good, long established credit, and ask them to add you as an authorized user. Their good credit will show up on your report and boost your score.

3. Pay Your Bills on Time

If you can’t keep up with your bills, that may be a sign to get rid of some of your credit cards. Some of our clients have over 20 credit cards open! Consolidate your accounts as much as possible.

But when you stop using an account, don’t close it. As long as it has a good history, an open, unused credit account will continually add a little boost to your credit.

Turn Bad Credit to Good Today

To get into investing with bad credit, the best step is to focus on raising your score.

It can be overwhelming, but just dive in. Ask for help – from trusted family, friends, or Hard Money Mike.

Or, if you have major credit issues dragging you down for the long-term, you may need to reach out for advice from a professional. Spending a couple hundred dollars now will pay for itself later in your great real estate investments made with a high credit score.

To start working on your credit score today, download this free credit score checklist

Watch our videos on credit here.

Let’s fix your credit score fast! Happy Investing.

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Be Recession-Ready: How to Raise Your Credit Score

Credit score tips to prepare your real estate investment career for a recession.

The upcoming economy will be an opportunity to create generational wealth.

In the years after the 2008 crash, Hard Money Mike helped people create a great real estate portfolio. A portfolio that has taken them through the past decade and onto the next generation. 

We know the opportunity is always there in a recession. But we also know that if you’re not money-ready… you’ll probably miss your chance. 

Your credit score is more important now than it has been for a long time. With inflation hitting and a possible recession on the way, lenders are tightening up with loans. Your credit decides whether your real estate investment career will be easy or hard. 

So what do you need to know about investing with your credit score? How can you turn a time of struggle into a time of opportunity?

What is a Good Credit Score?

Credit scores range from the 400s to 800s. But for the purposes of the lending world, that range shrinks to the mid-600s to upper-800s. 

Over the past 6 months, with inflation and interest rates rising, big institution lenders have tightened their grip on loans. Not just anyone can get a loan – you’ve got to have a good score. 

But what is a good credit score for real estate lenders?

Before this recent shift in the economy, the lowest score considered by a lender was 640. Now, most lenders won’t look at anyone under 680. And that 680 minimum could soon turn into 720.

Institutions raise credit score minimum requirements to cut investors from the loan pool. This means many of your competitors will be unable to find the same kind of money they could 6 months ago.

You don’t need to be one of the investors squeezed out of the lending space. But you’ll need to understand exactly where your credit is, how to improve it, and what good credit score range lenders are looking for.

Make sure you’re credit-ready for these upcoming opportunities.

How to Increase Your Credit Score

To take advantage of this next market, you’ll need to keep money coming in. Banks and hard money lenders will be stricter with loans. You’ll need a good credit score to not be squeezed out of opportunities with lack of funding.

There are a few simple things you can do to raise your credit score.

Pay Your Bills on Time

This is the absolute most important action to increase your credit score. Payment history makes up at least 40% of your score. Lenders who don’t require a minimum credit score will still look at whether or not you pay your debts back.

Focus on this habit if you haven’t. Missing payments is the biggest red flag to lenders. No one – from banks to small hard money companies to OPM lenders – will want to give money to someone who has a history of not paying back. 

Reduce Your Credit Card Balances

If you’re using a credit card to fund fixes on your projects, make sure to pay it off completely after every flip. Pay off as much as possible as you go. Keeping a lower balance on your cards will:

  • Improve your credit score.
  • Ensure you won’t run into late payment.
  • Keep your balance from getting out of control.

It’s smart to have credit cards paid down before applying for a bank loan. To do this fast, you can get money in ways that won’t show up on your credit report. You could use a personal loan or OPM, a 401k loan, or a HELOC.

Get Authorized on Someone’s Good Credit

If you’re struggling with your score, find someone with good credit who will authorize you on their account.

This person will likely be a little older. They’ll have a great credit score, and their accounts will be established. Older people will naturally have an advantage you don’t – the length of their accounts.

Simply getting authorized on another person’s good credit will bump your credit score up.

Know How to Increase Your Credit Score

It’s important to give your credit score all the boosts you can before trying for a loan. Right now, the difference between a 680 credit score and a 679 is the difference between getting a loan and not getting a loan. The difference between a 720 and a 719 is getting a 9.5% rate rather than 11%. 

Real Estate Investing with a Low Credit Score

Investing in real estate when you have a low score is definitely more difficult, but it’s not impossible. 

If you’re researching how to invest with a bad credit score, raising your score should be your number one priority. These options aren’t replacements for a good score. But you also shouldn’t have to pause all investments until your credit is good.

So, what are your lending options with a low score?

You’re essentially out of the market for both banks and national hard money lenders.

You’re down to two options.

1) Using Small, Local Hard Money Lenders When You Have Bad Credit

Individuals or small hard money companies (like Hard Money Mike) don’t depend so much on credit. Instead, they focus on the quality of the deals. 

Corporate hard money lenders can afford to turn off their lending and turn it back on. Small lenders rely on loans to make a living, so they’ll always be willing to offer you money if you have a good deal.  

If you know how to put a deal together, if you understand all the numbers, if you can prove a deal is good – small hard money lenders will want to work with you, regardless of your credit score.

Small hard money lenders probably won’t require a certain credit score… But they will check your credit. Particularly your payment history. If you have habitual late payments, even a smaller lender won’t want to lend to you. 

However, a small hard money lender will be more likely to understand that life happens. Sometimes certain life events negatively impact your credit. National lenders won’t ask for the story behind the number; they’ll just see that your credit score doesn’t fit their criteria. Small lenders will work with you. 

2) Using Real OPM for Money When Your Credit Score is Low

As lenders are tightening up, investors aren’t the only ones who will feel the squeeze of the economy. There are regular people out there – with money – who will also be affected by inflation, interest rates, and the market.

These people are typically 50 or older and looking for ways to live off the retirement money they’ve accumulated. Banks are still only paying around 1% rates, but someone could get a rate of 5 or 6% by loaning money to you. 

Inflation matched with stagnant bank rates make your potential OPM lenders lose money. Lending to you is a way for their money to keep its value.

OPM lenders will also care less about whether you have a 620 credit score or an 800 score. They’ll just care that you’ll secure their money and do deals the right way.

Don’t let the economy fool you into thinking there aren’t any big pools of money out there. You just need to know how to find them, navigate them, and keep them.

There’s No Replacement for Good Credit

Again, these are some of your options if you have low credit, but they are not a replacement for high credit. This is your business. Take your credit seriously.

Higher credit scores open up other options. Having other options make hard money loans and OPM work even better for you.

Your business will be easier, faster, and smoother when you have a credit score that doesn’t work against you.

BRRRR and Fix-and-flips During a Recession

You’ll soon be able to make money like no other time in the last 12 years. Deals will be easier to find than ever.

In the last decade, loans have been easy to come by. But home prices have been going up, so it’s been hard to find good properties. What will happen next is money will get tighter, but deals will get better and better as rates go up and property values go down.

So what can you do in the upcoming fix-and-flip and BRRRR market? Especially when your credit score is low?

Fix-and-flip Loans with Bad Credit

If you have bad credit while doing fix-and-flips, local hard money lenders will become your best friends.

Reach out to your real estate community, go to biggerpockets.com, and find those small lenders in your community. 

You’ll need to keep plenty of lenders in your back pocket. Local hard money companies will be swamped by other investors with low credit scores. To have a good chance at getting money when you need it, you’ll want to know five or six good lenders.

BRRRR Properties and Long-term Rentals with Bad Credit

There’s always two loans with BRRRR – the acquisition, and later, the refinance. Some smaller hard money lenders can help with that first loan, but longer term, you’ll have to start looking at other options. If you run into trouble with the refinance, it can be hard to pay the hard money loan back. OPM could become vital for getting money for these properties.

Another route is to find something like a subject to, rather than a traditional BRRRR. There will be people who need to get rid of a property because they’re behind on payments. You can jump in and take over the property and the payments without assuming the loan. You don’t necessarily need a good credit score – you just need to be able to make the monthly payments and rent the property.

Overall, be aware that your pool of options will be much smaller with a bad credit score. Your price point will be lower, your range of options is smaller, and your ability to close on deals is slower.

Private Lending Options for Investors with Bad Credit: OPM

OPM is other people’s money. Real people that you know – friends, neighbors, family, people in local real estate groups. OPM can help with down payments, construction, monthly payments – it fills the gaps of your project. And if you really find the right people, the entire cost of a property could get funded with a $500,000 check.

OPM lenders won’t care about the same qualifications as institutional lenders. Your credit score is less important than whether you secure their money and pay them back as agreed. Good credit or bad, OPM will be one of the best tools for you as an investor in this next market.

Usually these are people closer to retirement. They want to get off the roller coaster of the stock market and get more reliable, consistent returns.

Someone with $300,000 in a bank account at 1% makes $3,000 a year on that money. If you can give them 5%, they make $15,000 instead. OPM will be mutually beneficial in this upcoming economy – you just need to know where to find OPM lenders and how to make it work.

With OPM, you can do more deals, better deals, faster deals, and deals other people can’t afford. We want to help you take advantage of this opportunity. 

Hard Money Mike has funded over $1 billion of loans with Real OPM. During the crash in 2008, we couldn’t get money from banks, so we went the OPM route and have stayed that way ever since. We know how to do it right, and we know that it works.

Where to Go From Here

Few real estate investors will be prepared to take advantage of the impending recession.

You can be the one to take this opportunity, get the information, and be ready with your credit score. We have the experience to help you get ahead.

Download our free Credit Score Checklist here and free OPM checklist here.

Watch videos on credit tips here.

Reach out to us with any questions at HardMoneyMike.com.

Happy Investing.

Text "What is a credit score?"

How Is My Credit Score Calculated?

Real estate investing gets a whole lot easier when you understand your credit score.

There are a couple different types of credit scores, but the numbers we’ll use here reflect FICO scores (the most widely used credit score for most lenders).

Credit scores range between 0 and 850. More than 740 is great, and a score of less than 700 begins to limit your options.

This number is calculated by looking at five main pieces of information:

  • Credit mix
  • New Credit
  • Credit History
  • Payment history
  • Amounts owed

Credit Mix

Close to 10% of your score is based on the mix of credit you already have.

Do you have seven credit cards?

Or zero?

Do you have a car payment, a mortgage, student loans, personal loans?

Typically, the more diverse your lines of credit are, the better it is for your score.

New Credit

Around 10% is based on “new credit,” or how often you get credit inquiries or open a new line of credit.

New credit can temporarily lower your score. So for example, if you buy a new car, you’ll probably have trouble securing a loan for a property right away.

Length of Credit History

About 15% of your score is calculated based on how long you’ve had your lines of credit.

If you opened your first line of credit less than 5 years ago, you’ll have a lower score than someone whose credit is 40 years old.

Amounts Owed

These last two categories are the most important. They make up two-thirds of your credit score.

About 30% of your score is determined by something called amounts owed. Amounts owed is about your debt. More specifically, it’s about how much of your available credit you’re using.

For example, let’s say your credit card has a max of $1,000. You buy a new set of tires and brakes, so now you owe $1,000 on your card. You’re using 100% of your $1,000 limit – you’re maxed out.

The story creditors see when they look at you is that you’re not managing your credit well. They’ll assume you won’t manage other loans well either, so you get a lower score.

But let’s look at another situation.

Say you got a different credit card with a max of $5,000. That same borrowed $1,000 has a way different effect on your credit score. You’re only using 20% of your credit line, and you’re leaving 80% at your disposal. Creditors like that story. So you get a higher score.

Payment History

The biggest amount of your score, up to 35%, is based on your payment history.

Payment history is exactly what it sounds like:

  • How are you paying your bills?
  • Do you always pay on time?
  • Have you had any bankruptcies?

Financial institutions can see this information, and it’s the top factor they consider. At the end of the day, lenders want to know: Will you pay them back? On time?

Read the full article here >>

Watch the full video here >>

Credit score mix

The Must-Know Basics About Your Credit Score

What a credit score is and why you should care (if you care about your investments).

There’s a magical triple-digit number that seems to decide your fate in this world.

It can determine what car you drive, where you live, and how much money you can have at your disposal.

And in some cases, it can make or break your success as a real estate investor.

It’s your credit score.

But it’s not as magical as it seems. There’s a logic to your score, and you have the power to change it.

So let’s break it down.

What is a Credit Score?

A credit score is a way for lenders to determine your “creditworthiness.” In other words, your “you-can-trust-me-to-pay-back-your-money”-ness.

Because you know whether someone can trust you with their money. But financial institutions don’t know you like you do.

Lenders need a way to decide if you’re safe to lend to. So your score tells them the story of your financial habits.

How Is My Credit Score Calculated?

There are a couple different types of credit scores, but the numbers we’ll use here reflect FICO scores (the most widely used credit score for most lenders).

Credit scores range between 0 and 850. More than 740 is great, and a score of less than 700 begins to limit your options.

This number is calculated by looking at five main pieces of information:

  • Credit mix
  • New Credit
  • Credit History
  • Payment history
  • Amounts owed

Credit Mix

Close to 10% of your score is based on the mix of credit you already have.

Do you have seven credit cards?

Or zero?

Do you have a car payment, a mortgage, student loans, personal loans?

Typically, the more diverse your lines of credit are, the better it is for your score.

New Credit

Around 10% is based on “new credit,” or how often you get credit inquiries or open a new line of credit.

New credit can temporarily lower your score. So for example, if you buy a new car, you’ll probably have trouble securing a loan for a property right away.

Length of Credit History

About 15% of your score is calculated based on how long you’ve had your lines of credit.

If you opened your first line of credit less than 5 years ago, you’ll have a lower score than someone whose credit is 40 years old.

Amounts Owed

These last two categories are the most important. They make up two-thirds of your credit score.

About 30% of your score is determined by something called amounts owed. Amounts owed is about your debt. More specifically, it’s about how much of your available credit you’re using.

For example, let’s say your credit card has a max of $1,000. You buy a new set of tires and brakes, so now you owe $1,000 on your card. You’re using 100% of your $1,000 limit – you’re maxed out.

The story creditors see when they look at you is that you’re not managing your credit well. They’ll assume you won’t manage other loans well either, so you get a lower score.

But let’s look at another situation.

Say you got a different credit card with a max of $5,000. That same borrowed $1,000 has a way different effect on your credit score. You’re only using 20% of your credit line, and you’re leaving 80% at your disposal. Creditors like that story. So you get a higher score.

Payment History

The biggest amount of your score, up to 35%, is based on your payment history.

Payment history is exactly what it sounds like:

  • How are you paying your bills?
  • Do you always pay on time?
  • Have you had any bankruptcies?

Financial institutions can see this information, and it’s the top factor they consider. At the end of the day, lenders want to know: Will you pay them back? On time?

Need More Information?

Your score is incredibly important to keep on your radar. Especially when you’re investing in real estate.

It’s not a made up number that has no effect on your life. But it’s also not as difficult to understand as it may seem at first.

For more tips on building good credit and maximizing real estate investment leverage, check out these helpful videos on our Youtube Channel.

You can also download our Credit Score Checklist at this link.

Happy investing.

Make money with your credit

Making money with your credit score.

So, what’s the big deal about credit scores?

Well, think of it like a baseball game.

You can hit it out of the park and claim victory…or strike out and lose.

When you win the credit score game, you win countless opportunities.

These include affordable rates, more loan options, and, in the end, hundreds of thousands of dollars. In this video, we discuss 3 EASY ways to boost your credit score…and your cash flow!

How to Make Money with Your Credit Score Need a tool to generate positive cash flow? Download our FREE Loan Optimizer!

Learn more about how credit can fuel your investments on our YouTube Playlist.

WHO WE ARE ======================== Hard money loans are a necessity for most real estate investors. Mike Bonn and his team make them easy! For 21+ years, Hard Money Mike has provided topnotch lending services to real estate investors across the United States. We offer the best options in private lending for fix and flips, rentals, and other value-add properties. Plus, we can fund bridge loans in 10 days or less! If you’re looking for quality, FAST loans with the highest loan-to-values and best rates, then our team is ready to help. No experience required!

Making money with your credit score.

The impact of your credit score

How Your Credit Score Impacts Your Real Estate Investments

If you want to maximize leverage in your investments, you need to know this key information about your credit score.

There’s nothing more disappointing than this…

You’ve searched everywhere, but can’t seem to find a decent loan.

Money keeps getting sucked away with high interest rates and down payments.

Even when you find good properties, you never seem to come out on top.

…But your real estate investment was supposed to help you start living your dreams.

What’s going wrong on the money side of your investments?

Your Credit Score Matters

Your credit score could be the number one thing holding you back.

A credit score impacts cash flow from real estate investments. It determines interest rates, out-of-pocket costs, and what kinds of loans you can get.

With a low credit score, you’ll have:

  • Higher interest rates
  • Higher down payments
  • Fewer loan options available

What Is a Credit Score?

A credit score is a number between 0 and 850 that tells financial institutions whether or not it’s wise to lend to you.

Your score is determined by several pieces of information about your finances.

But the two most important are payment history and accounts owed.

It comes down to:

  1. Do you pay your credit cards and loans back on time?
  2. And do you use less credit than is available to you?

What Should My Credit Score Be?

With a score of 800, you’re almost guaranteed to hear “yes” from any lender.

At 740 and higher, you’ll still have access to the best loans with the best rates.

Between 670-739 is still a good position, and you can get decent rates.

And a score below 670 will be detrimental to your real estate investing experience.

Lending credit scores

Lending credit scores

But if you’ve just realized you have a low credit score, don’t lose hope.

How Can My Credit Score Maximize My Leverage?

The higher your credit score, the higher your leverage. Lenders look for people with high credit scores. Having a better score will open up doors for you to find:

  • Better loans
  • More quickly than you would with a lower score
  • From a wider variety of financial institutions

Interest Rates

A good credit score will get you loans with better interest rates.

A significant amount of money can leak out of your deal from bad interest rates brought on by your credit score.

To put it in perspective: If you end up paying $500 per month on interest, that becomes $18,000 after three years. That’s $18,000 that could have been your profit that goes directly to the lender instead. With a better credit score, you can find a loan that keeps more of your money in your pocket.

Down Payment

Let’s say you found a great property for sale for $300,000. With good credit, you may only be asked to put 10% down – or potentially even 0%! With a lower credit score, though, you’ll likely be asked for a 20-25% down payment.

For the same $300,000 deal, good credit can mean the difference between paying $30,000 out-of-pocket or $70,000!

What To Do Next

Your credit score determines whether you take the easy road or the hard road with your real estate investing experience.

If you don’t already have a credit score of 800, focus on raising your credit score before anything else. Doing this will earn you:

  • Lower interest rates
  • Lower down payments
  • More loan options
  • A more successful investment!

It’s hard enough to find properties, find contractors, find tenants, find sellers… make it easier on yourself to find lenders.

We want to help you succeed in your investments.

For more help with understanding and improving your credit score as a real estate investor, check out these helpful videos on our YouTube Channel.

You can also download our Credit Score Checklist at this link.

Happy investing.