California Hard Money Loans for Bad Credit Borrowers
As a private hard money lender in California, we receive a lot of questions from borrowers about this unique financing strategy. Today, we will address one of those frequently asked questions.
What is a hard money loan for bad credit borrowers?
The short version: A bad credit hard money loan gives California borrowers a short-term financing option with real estate as collateral. With a hard money loan, the lender qualifies the property being used as collateral, rather than the individual borrower. As a result, borrowers can often qualify for a California hard money loan despite having a bad credit score or history.
What Is a Hard Money Loan?
Let’s start with a basic definition of the hard money loan, before we get into the credit score aspect of it. In California, a hard money loan is basically a short-term, non-conforming loan option that’s commonly used for buying commercial, rental or investment properties.
Unlike a traditional mortgage loan, which comes from a bank or credit union, hard money loans are usually offered by individuals, investors, and/or private companies. These smaller lenders specialize in hard money loans and offer a flexible financing option to borrowers who might not qualify through a regular bank.
The “hard” part of the label refers to the tangible or hard asset that’s used to secure the loan. In most cases, a real estate property is used as collateral for a hard money loan.
These loans provide quick funding to borrowers who might not qualify for a traditional mortgage loan, due to their credit score, income, or other disqualifying factors. This makes the hard money loan well-suited for borrowers with a bad credit score or similar issues that might disqualify them for a regular mortgage product.
With that definition out of the way, let’s shift gears and look at the advantages of a hard money loan for bad credit borrowers in California.
Benefits for Borrowers With Bad Credit
If you apply for a regular mortgage loan through a bank, credit union or traditional lender, they will scrutinize every aspect of your personal financial situation. One of the first things they’ll do is review your credit reports and scores.
Specifically, these lenders want to know how you have borrowed and repaid money in the past. And that’s exactly what your credit reports shows. They include a list of current and previous credit accounts, dating back several years. Your credit score, on the other hand, is a three-digit number derived from the information within your reports.
Borrowers with a documented history of missed payments, late payments, or other issues tend to have lower credit scores. A lower score represents a bigger risk to the lender. As a result, borrowers in California with bad credit often have trouble qualifying for traditional mortgage loans. In some cases, they get turned down based solely on their credit history.
This is where hard money loans come into the picture. Even with bad credit, a borrower can often qualify for a hard money loan in California, as long as the property being used as collateral has sufficient value. California hard money lenders are more interested in qualifying the real estate asset being used to secure the loan — rather than qualifying the individual.
For many borrowers with bad credit, a California hard money loan is the only financing option available. This type of loan can be well suited for borrowers with poor credit scores who might not meet the stricter requirements used by major banks or credit unions.
Commonly Used for Rental and Investment Properties
The money obtained through a hard money loan can be used for a variety of purposes. But they are most commonly used for buying real estate. Real estate investors, in particular, often rely on hard money loans as a quick source of “cold, hard cash.” This is true for borrowers with bad credit as well.
Unlike a traditional mortgage loan, which could take several weeks to close, California hard money loans often close within days of the initial application. That’s because the qualification process is more streamlined, when compared to conventional financing.
With a hard money loan, the lender mainly wants to know the value of the property being used as collateral (and possibly the cash flow associated with it). They are far less concerned with the borrower’s credit history, personal income, or debt situation.
All of these features make hard money loans well-suited for bad credit borrowers who need to finance a home purchase, whether it be a rental or commercial property.
Five Key Point Take Aways
We’ve covered a lot of information in this article. So let’s wrap up by summarizing the most important points:
Have questions? Independent Lending is a California hard money lender with decades of experience. Please contact us if you have questions about this financing option or you would like to apply for a loan. We look forward to hearing from you.