So you have bad credit… but you’re working on improving it and want to get a house.
Is it possible to still get a house even with bad credit?
Yes, yes it is. There’re multiple ways to do it. But of course, just because you can, doesn’t mean you should rely on these methods forever. It’s just easier to have a good credit score in the beginning.
But have you ever wondered why you have bad credit?
Why do I have bad credit?
Bad credit can happen because of several things. It could be that someone stole your identity or you missed some payments. The economic crisis in 2008 didn’t help also, considering that the effects linger still somewhat after so many years.
But sometimes, it can also be because of idle spending. A credit card here. New clothes and tons of holidays, impulsive buying and online shopping and so on.
Anyway, here’s some ways to get a place with bad credit.
You can do a lot alone, but you can do even more together. Partnerships make it easier and smoother to complete the tasks and you can cover each other’s weaknesses. For you, maybe it’s your bad credit but maybe you have and can do something they can’t.
There’re many benefits to partnering up here in real estate – from more opportunities to talent pooling, more financing options to motivation, a good real estate partnership brings a lot to the table.
Also don’t forget to ask yourself this when looking for a partner: “What can you offer that’ll help them achieve their goals while achieving yours?”
Remember, finding a partner doesn’t mean you should accept every offer to be your partner lah. You should look for a partner that is compatible and will work along with you 🙂 So be careful!
2. Seller financing
You’re probably wondering what is seller financing. Seller financing is a process where the seller finances the property so that you don’t have to take out a loan. They’re usually more flexible compared to banks in terms of down payment, so you’re in good hands. The process is typically faster as well.
How it works is that the seller agrees for you to pay in monthly instalments until the property is paid off or when the term of the loan ends.
Sellers usually don’t ask to see a credit score so that can be great. But make sure that the seller owns the property with no hidden charge or anything under the carpet. Like mortgages, for example.
3. Hard money lenders
Hard money lenders are basically people or businesses who lend money at high interest rates and short terms to real estate investors. The rates usually vary but fall between 10% to 18% interest. Hard money lenders usually tend to be former investors and rarely look at credit scores.
It is getting common for them to look at credit score these days, but they usually care more about how secure the deal is and if they’re going to make money from it.
Like, if you as the borrower defaults, can they like foreclose and then sell for more? That kinda thing.
4. Private money lenders
Private money lenders are somewhat similar to hard money lenders. A common misconception is that they’re like banks and have the same business model like them. They aren’t. They also aren’t loan sharks. Instead, private money lenders are usually regular people who’re looking to achieve good returns on their investment and not real estate professionals. They might be people you know – your relatives, family or friends.
A key part of this working is relationship, so they’re nicknamed “relationship-based” lenders.
There’re 3 types of private money lenders:
- Family and Friends
- Colleagues, professional & personal acquaintances
- Investors and hard money lenders
Private money lenders are good for short-term and long-term investors who need quick financing or long-term investors who just want to season their property.
Before we get into the details, let’s talk about what wholesaling is 🙂 It’s when someone contracts with the home seller, markets the home to interested buyers then assigns the contract to one of them. The wholesaler profits with the amount in difference between the contracted price with the seller and amount paid by the buyer.
Wholesaler profit = Contracted price of seller – Amount paid by buyer
Wholesalers usually do this without using their own money, but it’s a full-time job and pretty hard. You really need some patience cause it takes time. Oh, and marketing skills cause you need to sell’em fast.
Another thing is that it’s kind of on the shady side… so you should really get a real estate license if you wanna do this.
So yes, you can buy a house with bad credit. But if you have bad credit because of bad habits or something, fix those habits first because otherwise this cycle will just continue. And you won’t really get to enjoy real estate investing fully 🙁