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Property Management Blog

Your credit score and real estate investing

System - Tuesday, June 6, 2017
Property Management Blog

When you need to borrow money for a real estate investment, traditional mortgage lenders DO care about your credit score, just like they do when you’re buying a residential home to live in.

If you have bad or poor credit (under 650), then it’s unlikely you can qualify for a loan. Borrowers with fair credit (650-699) are likely to be hit with a high-interest rate, making your monthly payments higher than if your credit was good. If you have good or excellent credit (700-850), then you’re in business!

But don’t fear; if your credit score is too low for you to qualify for a loan from a traditional mortgage lender, that doesn’t mean you can’t invest in real estate. Investors can tap into various forms of alternative financing, such as:

  • Private money loans or hard money loans
  • Online lending resources
  • Cash purchase then refinancing
  • Partnering with other investors
  • Equity lines on existing holdings

In some cases, it may be advantageous to use a combination of these tactics. For example, you could borrow from a private lender to purchase a property. Then once you have it rented, you can refinance through a traditional lender and pay off the private money loan. Now that you have the asset (the property) as collateral, and it is earning revenue (the rental income), getting a traditional loan is often more feasible.

As a side note, private money lenders and hard money lenders are similar but not exactly the same. Here’s a quick overview of how they differ.

No matter your source of funding, be sure to understand fully what you’re getting into. Consult with a real estate attorney, and read all the fine print before you do a deal.