Hard money lenders are a way to get money to purchase a home or an investment property. These lenders offer a relatively short term (less than twelve months) loan secured with the value of physical property. Though the interest rates tend to be a little on the higher side, the flexibility can be worth it. However, you should still know how this will impact your credit score.
1. Hard Money Lenders May Pull Your Credit Report
Even though a hard money loan is not based on your credit score, hard money lenders may still pull your credit report. A hard money lender wants to understand your history as a borrower. They want to see whether you've had properties foreclosed on in the past, whether you've purchased properties before, and other very important factors. All of this is most easily obtained through a report. If you have had bankruptcies and foreclosures, it's best to disclose them upfront. Further, you should expect to see your credit score go down a little during this process because of your credit report was pulled.
2. Hard Money Lenders May Not Report to a Credit Bureau
This is both a good and bad thing -- for most people it's good. Hard money lenders often don't report to a credit bureau. Some do, so you need to ask -- but most don't. Because of this, your debt-to-income ratio is unchanged. In effect, the loan is no longer "on the books" even though it is an official loan and a contractual obligation. It's just like getting a personal loan from an investor or a friend. Because of this, you won't see the loan when you go to get a traditional mortgage or other financial credit from a bank. On the other hand, you also won't be building your credit score or establishing a credit history, because it won't be on your report.
3. Hard Money Lenders May Report a Default
Though hard money lenders often don't report the loan itself, they may still report you if you default on your loan. This will impact your credit score quite significantly but it's only a worry if you become late or default on the loan. When a default is reported, you can still get it removed -- by paying off the amount and by working with the lender.
Hard money lenders are very much "outside" of the traditional financial structure. They don't require certain credit scores, don't report to credit bureaus, and will usually work with you rather than trying to pursue you legally. Though they're a fairly niche financial product, they can be an excellent choice for those who need cash fast for a property. Talk to a lender, like Crossroads Investment Lending, for more help.
