A friend of mine once said Bad credit is just a mere number. But what did he mean? When one applies for a loan, one of the main factors that lenders examine is the borrowers’ credit score. This is what measures your creditworthiness from the lenders’ standpoint. A credit score is calculated using based on different aspects. The critical information used includes your credit utilization and how you make payments. Generally, credit score ranges from 300-850. A good credit should be at least 700. Any value below this represents bad credit.
Good credit is built over time. It may take many years to improve your credit depending on the strategies one uses. Having a bad credit has a lot of implications for your financial life. Most lenders will be unwilling to lend you if you have bad credit. You can still qualify for other loans though. Can you buy an investment property with bad credit? This is the subject of interest today. The truth of the matter is, a credit score is essential. However, it is just a number in the sense that it does not really define you. As Alltrade Property Management points out, it is possible to invest in property with bad credit. You don’t have to wait until your score improves. Luckily, there are a few ways to get around the credit barrier. With that in mind, let us see how you can do that.
- Look for a rehab property
You already have bad credit and this impacts your financial decisions. You cannot qualify for a loan that can finance the overall cost of a one-family home. Nevertheless, you are still eligible for loans that can cover the overall costs of acquiring a distressed property which can be renovated and earn a profit when flipped. You can even get a distressed property worth up to $40,000 depending on the place and the condition of the property. You will then have to repair the property and transform it into a more livable form.
However, you may spend too much on labor than what you would have used to acquire a property in a better condition. The best thing about this arrangement is that it requires significantly less capital upfront. If you get an appropriate property, you can earn significant profits, though this depends on time and efforts you devote to it. What is more, hard money lenders have the tendency of focusing on the value of the property and not your credit? Even though you are going to spend significantly, you can earn more profits if you renovate and sell the property.
- Look for a cosigner
Do you really want to get a property but you cannot qualify for a loan? Look at different types of money lender reviews and check what is suitable for you. Looking for a co-signer will help you in this regard. Generally, the co-signer serves as the guarantor to your loan. His credit score is what lenders will use to gauge your eligibility. In case you default the loan, the co-signer will have to repay on your behalf.
In fact, you can qualify for any loan if you have a cosigner with good credit. Additionally, this approach can help you establish your personal credit as you make payments. Make sure you are in a position to repay the loan, even in a situation where the property cannot yield returns in the short term. Failure to keep up with the payments have devastating consequences. For instance, it will not only detriment your score but also that of your co-signer.
- Enter into a partnership
Co-signing can work perfectly if you find someone willing to bank on you. What if you don’t get one? You can still utilize someone’s credit to the investment. Search an individual willing to enter the investment and form a partnership. The only challenge with this arrangement is that you will be required to share profits with the person. Nonetheless, it is a simple approach to getting what you need. But be careful when forming a partnership with someone in investment property. You don’t want the partnership to die before the investment comes to fruition.
To be safer, follow all the legal requirements of setting off a business. To create an investment company, you will have to get registered as a separate legal entity and start a website. While it appears to be adding more burden to what you already have, this move can benefit you in several ways. For instance, a lawyer can take charge of the formal registration of the company. Besides, an attorney facilitates precise contracts and other agreements. Creating a website can be challenging. However, you can get help free of charge online.
- Save a huge down payment
If you have bad credit, you can still get loans if you make a huge down payment. For instance, if you are in a position to make 20% and above upfront, you can easily get approved for loans which above your credit score limit. Making a huge down payment convinces lenders that you are financially stable as well as able to manage funds through saving with time. Even though you can still be charged a higher interest rate, huge down payment makes banks as well as other lenders to consider you. The approach may require a lot of time but it is worth it. It is a sure way of getting yourself an investment property with bad credit.
Good credit is built over time. It may take many years to improve your credit depending on the strategies one uses and how well versed you are with credit card jargon. Having a bad credit has a lot of implications for your financial life. Most lenders will be unwilling to lend you if you have bad credit. You can still qualify for other loans though
- Consider a second mortgage
In most cases, individuals with bad having bad credit have never had a good payment history. Nevertheless, some just have to go through soul-searching situations. It is not surprising for individuals who have undergone difficult times to own homes at their easier phases of life. If you already have a home, you can get an investment property by obtaining a second mortgage on your current home. Your credit does not play a significant role here because your current home serves as collateral to the property.
Bad credit can affect you in several ways. Many lenders use it to gauge your eligibility to loans. However, you can still qualify for some loans. Bad credit does not define who you are. In this discussion, we have examined several strategies you can use to buy an investment property with bad credit.