Do Hard Money Lenders Look at Credit? (we end the debate here)
Good topic, huh?
This is a question we are asked about 50 times per day and it is a topic constantly being debated in the real estate investing community.
I will answer this question with a question- does the hard money lender want to own the property? And I’m not being a smart aleck when I ask that. Here’s why:
**Some lenders don’t care if someone defaults and they have to foreclose. They might even want to own the property. (There are still lenders out there like this, mostly old school guys.)
**Some lenders don’t want defaults and just want a performing loan portfolio. (We are this type of lender.)
If the lender doesn’t care if the loan performs or not, no reason to look at credit. If they want only performing loans, it is important to analyze the credit history. That may sting a bit, but it’s the truth. If someone doesn’t pay any of their bills, they aren’t going to pay us either.
That being said- a borrower doesn’t have to have perfect credit history and an 800 score. Of course not. Plus if they have a lot of cash the credit becomes less important, but that’s a separate discussion.
So I guess the easiest answers is- we look at credit, but it’s not the most important thing. It’s a factor, but not the only factor. Good enough answer?
To learn more about how hard money lenders underwrite loans, get the FREE report on the right hand side of the page “7 Steps to Guaranteed Hard Money Loan Approval.” If you ever plan to apply for a hard money loan this is a “must have.”
***I would like to point out that this policy on credit applies to the purchase/rehab scenario. If someone needs a bridge loan on property owned free/clear, credit is typically not a factor for any lender, but the LTV will be lower.
What do you think about this? Feel free to comment below.