For a long time, real estate has been perceived to be among the best ways of attaining financial freedom. However, most people lack the required money to make cash purchases and that’s why potential investors rely on loans. If you don’t have good credit scores and an outstanding track record, you may not get the best rates. Nevertheless, there are several ways of navigating the credit score roadblock and start growing your real estate investment. In this article, you will learn some tactics you can start implementing today.
Hard money loan
If you don’t have a good credit score, reaching out to a hard money lender for some funds can be a good idea. These are private lenders who specialize in offering short-term loans that are secured by your property. However, they tend to lean towards people who seek property to invest in as opposed to those who want to buy a home. Normally, they can offer you the money quickly and this explains why they have attracted significant attention.
Hard money lenders are not obsessed with your credit scores and to them; it’s just a number and not a deal breaker. But if your score is high, you are just as welcome as someone with a low score. They made a decision based on the value of the house in question and if the deal is good, you get the money. Since they take your property as collateral, defaulters don’t scare them since they still make a profit whether you pay back or not.
While having a poor credit score doesn’t diminish your loan approval, you must be willing to pay higher interest rates. Besides paying about 10-15% in interest, you are also expected to pay points which can be anywhere between 2-4% of your total loan. This means the loan will cost more but if you know that your property will make a reasonable profit, this can be a good move.
At the same time, you may not get the entire amount required to purchase, since some will only offer you 65-75% of the property value. There also others who will only give you after repair value and this means you need to figure out how to get the difference.
Save a huge down payment
When your credit scores are suffering but you still want to invest in real estate, you can save huge down payment that will help you get a monthly direct loan. For instance, if you pay more than 20%, you may get a significantly higher amount that you would qualify for if you were using a normal down payment.
By doing this, lenders are convinced that you are ready to take financial responsibility since you’ve already managed to save lots of money. While you may still be subject to higher interest rates, this strategy makes it easier for you to get a loan with most lenders. However, it is important to understand that this option requires commitment and patience.
Look for an investment partner
Many people are eager to get into real estate investing and are ready to use their stellar credit to fund an attractive deal as long as they won’t have to do all the hard work. If you can find someone with such a mentality, don’t hesitate to partner with them.
The partner can be a family member, friend, or a neighbor. Most importantly, make sure you are getting into partnership with someone who complements your skills. To be specific, get someone who can finance the deal, but you need to make sure that you can offer deal-making skills as well as the time to make the necessary renovations.
Seller financing is best used when the property you intend to acquire is fully owned. If the current owner has no need for fast cash and they don’t have a problem with cash flow, you can use this option. If the person selling you the house agrees, you can get into a mortgage with them. Basically, they act as a bank since they are financing the deal. You are allowed to make periodic payments towards the agreed amount until you clear the balance.
This option is quite beneficial since the seller won’t ask for a credit report, but they will lay out the terms. On the other hand, a seller will benefit from a regular cash flow. At the same time, the closing costs are quite low and you also enjoy flexible terms.
This is an excellent path if you are new to investing and you are not required to pay anything, so you don’t need good credit scores. The only thing you are required to do is find a willing seller and negotiate all the terms then finalize the agreement to buy the property. Instead of paying, you look for someone else to make the purchase on your behalf.
Since you had already negotiated the terms, the new buyer will assume the agreement and the seller will get their due. After this, you will be given a facilitation fee for making the deal happen. A lot of successful real estate investors started this way in order to accumulate enough capital. After a couple of deals, you will have the money to start investing.
Real estate investment is an amazing industry and anyone can do it since you don’t need several million or stellar credit scores. All you need is desire, passion and the willingness to defy all odds. The moment you decide to get into real estate, start making the right connections and find a way to fund the deal.