Hard money loans are typically easier to get than their traditional counterparts. That being the case has led some people to assume that hard money lenders will lend to just about anyone. That is not true. Hard money lenders are just as picky. It is just that their loans are easier to get because their lending criteria are different.
This leads to a question many first-time borrowers ask: will a hard money lender look at my credit score and history? The answer is a simple ‘maybe’.
I am not trying to skirt the issue. I’m not trying to be noncommittal. The fact is that some hard money lenders don’t look at credit score or history at all. Others do, but not for the same reasons as banks and credit unions.
Not for Approval
Actium Partners is a Utah hard money firm located in Salt Lake City. They say that as a general rule, hard money lenders do not look at borrower credit score and history for approval purposes. Loan approvals are based on collateral value. This is what makes hard money an asset-based loan option.
Imagine a property investor approaching Actium in hopes of funding the next property he intends to add to his portfolio. Actium wants to know how much the property is worth. They want to know its value compared to the amount the borrower is asking for. If the value is there, the loan will most likely be approved.
Actium will look at some other things just to make sure they can properly manage risk. But the borrower’s credit score and history play no role in whether the loan is approved. So then why do some hard money lenders look at credit score and history?
Rates and Terms Are Flexible
One of the hallmarks of hard money is lender flexibility. Lenders like Actium Partners are not forced into a rigid set of rules for writing loans. They can tailor loans to meet both their own needs and the needs of their clients. This is where credit score and history may come into play.
Some hard money lenders look at borrower credit scores in history as one of the many factors determining the rates and terms offered. Like more traditional loans, a poor history and score would typically mean a higher interest rate. It could also cause a hard money lender to prefer a shorter term. Why? For the same reasons traditional lenders offer higher rates and shorter terms.
The biggest reason is risk. Hard money loans are already riskier by their nature. Lenders do not want to extend themselves beyond their own risk appetites for obvious reasons. So while a borrower might have a highly valued piece of property for use as collateral, his credit score and history may demonstrate the need to be cautious. Offering a higher interest rate and shorter term is one way of doing so.
Hard Money Lenders Aren’t Out to Lose
While some hard money lenders care about credit scorn history while others don’t, the one thing they all have in common is that they are not out to lose money. So the idea that they will lend to just about anyone is simply not true.
Hard money loans are easier to get because asset value is the main driving force behind approval. When lenders do look at credit scores and histories, it’s usually done to better understand their risk. That risk helps determine interest rate and terms.
And now you know. That is really all there is to the credit score and history question.