If you have a credit score of 640 or less, chances are that you will be denied a home loan from a traditional bank. For many sub-prime borrowers, the idea of homeownership seems beyond their reach and real estate investing is out of the question. However, there are certain Arizona Bad credit home loans that allow borrowers with bad credit to make real estate investments to help build their personal wealth.

One type of real estate investment loan available to bad credit borrowers is a hard money loan. A hard money loan is a type of asset based loan financing that is secured by real property. Hard money loans are issued by private investors or companies that specialize in hard collateral loans. The lender offers short term capital loans to purchase investment properties. The term of a hard money loan is generally no more than two years although it is possible to find hard money loans that have terms of up to 10 years. This type of loan is designed to make money on real estate for both the borrower and the lender. Hard money lenders focus on the value of property being purchased rather than the assets or credit score of the borrower. For this reason a hard money loan is an invaluable opportunity for an investor looking for Arizona Bad credit home loans to purchase a property as a short term investment.

Hard money loans are available for all property types including commercial, residential, multi-family, and even land loans. Each lender or group of lenders determines the requirements for what types of loans they will give as well as how much money they will lend. If the lender gives loans on residential properties he/she/they are required to be licensed through the National Mortgage Licensing System (NMLS). In order to sure that the lender you are using meets all requirements, it is best to use a broker or investment team that specializes in hard money lending.

Hard money lending has less regulations that traditional loans so it is a good option for borrowers needing Arizona Bad credit home loans due to a low credit score. A hard money lender looks at the merit of the investment, not the credit score of the borrower. If you are obtaining a hard money loan for a residential loan, you will still be required to show proof of income though it is usually less stringent than traditional bank requirements. In addition, the investors in a hard money situation look at the value of the investment, not the credit score of the borrower, making it an ideal loan for a bad credit borrower to purchase a fix and flip and make a profit from buying and selling real estate.

Hard money loans are available for multiple types of property. You can a hard money loan for a residential property, commercial property, multi-family property, and even vacant land. Residential hard money loans are the most highly regulated type of hard money loans. To give residential loans hard money lenders must be licensed and are required to ask for proof of income. Commercial property hard money loans are exempt from these requirements.

Interest rates for hard money loans are usually higher than other loan types. The interest rate is dependent on the lender as well as market conditions. Rates usually hover around 11% but have climbed as high as 21% in the past. The higher interest rates are due to the higher risk assumed by investors in this type of Arizona Bad credit home loans program. In the event of default, the lender’s investment is secured by the real estate that the borrower purchased. The lender can sell the property to recoup its funds.

It is important to remember that a hard money loan is designed specifically for real estate investing. The interest rates are too high to make it feasible as an option to own a property for a significant amount of time. Ideally if you purchase a property using a hard money loan you should sell it for a profit within a couple of years. Once you have paid back the loan amount, you get to keep an additional profit.

Hard money loans can be a great tool to help borrowers with bad credit take advantage of real estate investment opportunities. It is important to work with a broker experienced in hard money loans and lenders. In addition, you want to make sure to work with a trustworthy real estate agent and accurate appraisal company.

If you are ready to take the next step in growing your personal wealth with real estate investing, don’t let bad credit hold you back. Talk with a mortgage broker about securing a hard money loan today.

Dennis Dahlberg
Broker/RI/CEO/MLO