Many Americans who have bad credit report feeling alone, miserable, and almost hopeless. There is a false picture of a person with bad credit that paints him as irresponsible, reckless, and even as a thief. This could not be further from the truth. There are a variety of factors that can lead to a lower credit score. Job loss, divorce, a sudden change in income, or even an old credit card you forgot about can cause your credit score to suffer. Recent statistics released from FICO indicate that one quarter of Americans with active credit accounts have a FICO score of less than 600. This is considered a low credit score and if you have a low score, you can have trouble getting credit cards, car loans, and even store credit accounts.

If you are one of the over 40 million Americans with a low credit score, you probably assume that homeownership is beyond your reach. However, with new Arizona home loans with bad credit programs as well as federal programs, borrowers can qualify with low FICO scores.

As with any mortgage it is important to analyze the risks and benefits of a low credit mortgage. Once you have decided to stop letting your FICO score hold you back, it is important to know your options. Most likely you will not qualify for a bad credit mortgage through a bank, so it is important to find a reputable mortgage broker or investor group. A broker or investor has more flexibility in terms of types of loans that can be offered so you are more likely to qualify for a home loan. In addition, there are many private broker firms that use private investor funds. This makes it more likely that you can qualify based on the merit of your investment, as opposed to your FICO score.

There are many types of bad credit mortgages that are offered in Arizona. Many people know about adjustable rate mortgages and FHA loans that are designed for long term homeownership. However, there is a less well known Arizona home loan with bad credit loan type called a hard money loan. Rather than the goal being long term homeownership, a hard money loan is designed to be an investment strategy to help borrowers with bad credit make smart real estate investments and turn large profits.

For many people with bad credit, they assume that real estate investing is out of their reach because a bank will not lend them money for a mortgage. A hard money loan is a type of loan that is designed specifically for real estate investments. It is backed by an investor or group of investors instead of a bank. The loan is for a short period of time, usually a few months to about 4 years. The goal of the loan is a true investment, for everyone involved to make money.

In order to secure a hard money loan, you need to work with a mortgage broker or private investment firm. You would determine a property that you wish to purchase that is a sound investment. Typically these are fix and flip type houses that can build equity quickly. Once you have a property in mind, your broker will connect with a hard money investor or investment team. The investors will examine the merit of the property and the money making potential. They will use this information to determine whether or not they want to invest their capital. With many hard money lending companies, you can get fast approval. Some, like Level 4 Funding offer approval in as little as 30 minutes so you don’t waste your time.

Since a hard money loan is backed by investors, they are more likely to give loans to individuals with bad credit. Instead of only looking at numbers, the investors look at the potential for the property to make money and don’t focus solely on the credit score of the borrower. Once the borrower has renovated the property and sells it, the investors make back their money plus a certain amount of interest. The borrower also makes money on the investment so it is a win/win situation. One thing to be aware of is that hard money loans are short term loans. Usually the loan is only for about 24 months but some companies will offer longer terms. In addition, you will pay a higher interest rate because you represent a greater risk to the investors.

A hard money loan is a special type of Arizona home loan with bad credit in that it allows individuals with bad credit to make real estate investments. These investments can have high returns and have great money making potential. If you have bad credit but want to invest in real estate, a hard money loan might be a good option for you. Talk with a mortgage broker today to help you secure your loan and begin your real estate investing journey. 

Dennis Dahlberg
Broker/RI/CEO/MLO