Do You Need A Good Credit Score for Hard Money?

Question

To begin with, there is a lot of confusion out there when it comes to Hard Money Lenders.  Every one of us works a little differently.  The question:  Do you need a good credit score for a Hard Money Loan?  The answer: Yes and no!

It is true that a Hard Money Loan is based more on the property's value for the credibility of the loan.  However, investors who secure the loan still like to see good credit as well as assets and a good income from the borrower.  What this does is sweeten the pie!  With all the borrowers out there who are looking for Hard Money Loans, investors can pick and choose whom they lend to.  That's not to say that a 500 Fico will not get you the loan.  Investors will still lend on a 500 Fico, but the interest rate is higher due to the risk.

It's very competitive out there for Hard Money Loans for the borrower.  All things being equal, a good Fico along with many other factors can be advantageous to a better interest rate with Hard Money Loans.

Cheryl Jones · Answer

Hi John,

We lend in California and many other states just depending on the loan amount.

Cheryl Jones · Answer

No problem Zach.  I agree to a point.  I would say by and large most investors do want to see financial responsibility which is reflected in the FICO.  Our company does the same thing as most HML's in that the more experience a borrower has, the better his rate and term.  We take a lot of things into consideration when qualifying the borrower.  Most of the weight of the loan is placed on the equity in the property as is expected in Hard Money Loans.

Zach Hubert-Allen · Answer

@Cheryl Jones First off, excellent post! A few things to comment on here. I work for a HML and know the space fairly well at this point. We do indeed check for a minimum FICO. In my company's case it is 550. However, people with a 550 FICO and 700 FICO are subject to similar interest rates/terms. Some HML's (mine included) lend based on experience in the REI industry.

Note: "Experience" at my company is based on titles held for investment purpose.

I have heard of lenders increasing their LTV or reducing points based on FICO but would argue this isn't common practice. All in all, HML's can operate very differently. I will echo your statement that FICO does come into play! It is also reassuring to us(the lenders) when it is in good standing. That being said, it doesn't always affect rates/terms. Thanks again for sharing the post! Think it is a good conversation to have, and one that I am asked frequently.

John Mathewson · Answer

@Cheryl Jones Great post that is a very common question when it comes to using hard money for the first time. What states to you lend in?