Tag Archive for: good credit score

Text: "Don't Let Bad Credit Stop You!"

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.

Text: "What is a Good Credit Score?"

What is a Good Credit Score?

What number is a good credit score goal for real estate investors?

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?

Changing Definition of a Good Credit Score

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 range lenders will be looking for.

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

Read the full article here.

Watch the full video here:

Text: "Recession is coming. Prepare your credit score and real estate business NOW!" Blue background.

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.