Seeking a loan with bad credit can be difficult. After all what other way, can it be proven, that the client is trustworthy. Lenders need to feel confident that the person they’re accommodating will do their part and pay back the money.
Pros and Cons When Relying on Credit
What else can lenders go by, except one’s credit. When the individual isn’t known personally the next thing to lean on is a good credit check. However, having good credit doesn’t necessarily mean that the applicant will be loyal and pay. People with good credit default all the time and bad credit, could step up and the loan on time.
So relying on credit scores only, can present a sort of false hope in some cases. Now checking the credit of an applicant, along with references and a long term payment history of other one or more items that doesn’t necessarily appear on the credit report, may be more assuring.
So with all of this excitement about good credit, where would folks with bad credit turn? Hard money loans do not decide on loan approval by the clients credit score. They rely on other factors. However, the credit is looked at.
Even if the credit of the applicant is 500 or even lower, they will not be denied. Private lenders have the option of relying on credit scores, but they rarely do. Traditional mortgage banks, do rely on a good credit check before moving forward.
Bad Credit Applicants, What to Consider
If the credit isn’t high enough the applicant could be denied. But it’s just not the credit score, they also look for any negative situations. Forclosures, bankruptcies, early credit card closures all are considered. With hard money loans, these circumstances will not effect the loan approval, but will effect most likely effect the down payment.
The amount of the down payment could make a huge difference. If it’s too high, obviously the applicant will continue to shop for another lender. High down payment have been known to turn away quite a few applicants. After all if you don’t have the money, you don’t have money.
With this in mind, the applicant should do a things before having their credit checked. One of the main things they should do is pay off any small outstanding payments. Paying off bunches of these small bills will make a slight difference on your credit.
Next call all 3 credit bureaus and make sure all bills that were paid years ago have been cleared off of your credit. This is supposed to occur automatically, but in some cases it does not. This could also make a difference.
When arriving at the loan office, the applicant shouldp have a list of references. Allow these references to be people who have witnessed the applicant be financially responsible. Try to gather at least 3, with their full names and contact information.
Next, be aware that because of a low credit score, a larger down payment will be required. Perhaps some of the money can be borrowed from friends or family. If the down payment is too much, continuing to shop around may be the next option.
Next, the applicant should consider all of the assets that they have. If the total amount of all assets come to a good amount their is a possibility that the down payment will be reduced. Consider things like retirement funds, businesses that the applicant owns, boats etc.
Normally, the applicant will not be able to add diverse collateral. Only real estate property will be allowed with traditional mortgage loans. However, with private lenders this an option. Keep in mind, however that it will be in the discretion of the lender to accept different types of collateral. And always remember private lenders are working with their own money, so though they may appear lenient, at the end the decision to negotiate will be theirs.