You have a burning desire to invest in real estate, but you have bad credit. Do you have to stash your dreams away or is there a way to make it happen?
Luckily, there are ways you can still make your dreams happen. You may not do it the ‘standard’ way, but you can get it done. The best way is to work on your credit first. If that’s not an option, we’ll help you discover other options below.
Improve Your Credit
Start by determining if you can fix your credit. It may seem impossible, but if you take it one-step at a time, you can make it work.
- Bring all payments current – If you are behind on payments, get caught up. If all of your bills are paid on time, your credit score will start to increase. This looks better to mortgage lenders too.
- Pay old debt down – If you have a lot of revolving debt, get the balances down. Even if you can’t pay them off in full, get the balances as low as possible.
- Don’t open new credit – The older your accounts, the higher your credit score. Keep old accounts open and refrain from opening anything new for a while.
These simple steps can help your credit score increase. If you have too many of one type of account, you’ll need to diversify your credit as well. For example, if you have too many revolving accounts, add in an installment loan. This helps diversify the risk and increases your credit score.
Working Around Bad Credit
If your credit score doesn’t increase fast enough, there are a few ways you can work around the bad credit and invest in real estate:
- Get a cosigner – Someone with good credit that is willing to go into ‘business’ with you can help the situation. You both bring something to the table. Maybe you have the income/assets to qualify for the loan. Your cosigner can bring the credit score. Together you can create a good risk for a lender willing to let you invest in homes.
- Go subprime – Conventional and government-backed loans are not the only options. Try subprime lenders or credit unions. They often have their own programs. They make up their own rules, which may even allow lower credit scores.
- Get seller financing – Depending on where you are investing, you may find a seller willing to provide the financing. Since you are investing in the home, you may be flipping it. The seller will know that you will pay the loan off quickly. If they can make a quick buck on the interest while selling their home, they may be willing.
Should You Invest in Real Estate With Bad Credit?
The bigger question is if you should be investing in real estate with bad credit. You already have issues, should you compound them with an investment in real estate?
Today, the average US credit score is 687. Anything much below that and lenders are leery. Shouldn’t you be too?
If you have a bad credit score, you should ask yourself why. Are you in over your head in credit card debt? Did you let a mortgage or installment loan default? Did you file for bankruptcy? These are all questions you need to ask yourself. Really determine why you have bad credit. Is it something you are overcoming?
Investing in real estate isn’t a ‘get rich quick’ scheme. It takes time and money. You have to either fix the home up and sell it for more than you bought it. If you keep it, you’ll need to maintain the home and rent it out. There’s no guarantee that you’ll make a profit flipping a home or that you’ll find renters. Then you are stuck with this home and its subsequent mortgage. This could put you in a further financial bind.
Consider Your Options
You must consider your options very carefully. If having another mortgage will make you sacrifice if things don’t go your way, it might not be the right choice. If you have a partner splitting the costs with you, though, it may work. Again, you must consider all of your circumstances to see what will work.
The bottom line is that you can find funding to invest in real estate even with bad credit. It may not be rock bottom interest rates. It may even cost you a few points on the front. Investment mortgages aren’t as borrower friendly as mortgages for a primary residence. They pose a risk to the lender. If you are in a bind, you’re more likely to stop making payments on an investment property than your own home.
Consider the costs and shop for a lender that will work with you. Paying high fees or inflated interest rates can only ruin your chances of making money. Look at the process from all angles before deciding that buying another home is the right choice. Once you do your research, you’ll be better prepared for what lies ahead if you decide to invest in real estate.