Best Rental/ Buy and Hold lender for lower credit

5 Replies

Hello! So I have been saving money and likely will have close to 35,000 saved up by the end of April. I want to buy a rental property ( Most likely a duplex or a fourplex in Ohio or Indiana). the price range I am looking to purchase is anywhere from 75,000 to about 135,000. I don't have great credit ( Credit will be in low 600's by April) but I make good money and plan to aggressively pay down the debt each year ( I would be willing to pay back about 10-20% each year I am not a huge fan of debt) . Am I better off finding a private partner to lend me money or will I qualify for a traditional loan? I don't want to pay more than 7.5% interest rate either. If anyone is aware of any lenders that would work with a lender like myself I would appreciate it if you could PM their contact info. Thanks!

I should also add I wasn't employed consistently the last several years ( I was in school) and these last 4 months have been the first time I've been making solid money.

I’d recommend you build a great relationship with a community bank/credit union. In addition, start using secured credit cards and lowering credit utilization on current cards to around 30%

Hey Paul! Congratulations! Saving that much is a seemingly impossible task for many! Also great that you've found your target markets. 

You may be able to qualify for a traditional loan. The best way to find out (other than asking here, and someone with ample experience in the space can chime in) is by going to or calling banks and asking. 

Specialty finance lenders (or non-bank lenders) operate in this space because so many individuals like you exist (you have the funds for the 20-25% downpayment, low credit score but nothing extreme, and not strong personal income). They issue a rate predominantly based on the borrower's experience, the LTV, the property's rental income, your FICO, and a few other factors. They do not take into consideration your personal income or DTI. Most have a minimum loan amount of $75K-$100K. For a first time investor, if your score is under 620, and your looking at a loan amount of $50-$75k it may be difficult to obtain financing (definitely not impossible though). It will definitely be at least 7.5% - 8.75%, which isn't the end of the world and not too far off from your ask. You can also refinance most of these after 1-3 years with a traditional/conventional lender and get your rate down (although even those may rise!).

Another option is hard money, you get more funding at the start because they usually go up to 80% LTV (as opposed to 70%-75% LTV on rental loans). The benefit to hard money is that it's quicker to close, less strict on your criteria, the loan is interest only, and there is no prepayment penalty. The rates are high, especially for newer investors, expect to see 10% - 14% and at least 2.5 - 4 points due at closing as an origination fee. After getting tenants in place and owning the property 6 months, you can usually refinance with another specialty lender into a longer term loan, with the lower rate.

Private lenders (private individuals lending their own capital) is another route to look at. It's hard because it's a fragmented market, there's no one place to find them (other than, perhaps, the marketplace on BP).

@James Hunt currently do not have any credit cards though hopefully by next month I will have opened up several secured credit cards. Thank you @George Despotopoulos I am working on getting my credit score up to the 700's so that I can get loans alot easier. Thank you for your thoughtful response you were extremely helpful.

@Paul Aqua good luck Paul! Don't let your score hold you back if you're ready to invest. There are lenders out there who will consider you even if you're in the low-mid 600s. Of course the lower your score, the higher your rate, but sometimes it means getting a 7.50% or 8.25%, I know you rather not pay more than 7.5% but going up a little shouldn't kill a deal for you. You could always refi once the prepayment period is over and by then hopefully your credit should improve.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here