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If you’re looking to get into the fix-and-flip landscape and need funds for your next project, you may be considering getting a loan from a private hard money lender. But before that can happen, you’ll need to know how your credit history could impact your loan approval.
If you’ve ever applied for a conventional loan, you know that your credit is analyzed. Conventional financing looks at your credit profile, debt-to-income ratio, employment status, etc. However, your credit history doesn’t weigh as heavily when going through a hard money lender. The approval process is based more on the value of the property, rather than an investor’s creditworthiness.
When applying for any type of loan, it’s important to do your homework to know what you’ll need to provide. Let's go over what is typically needed from investors when seeking a fix-and-flip loan.
Is There a Minimum Credit Score for Fix-and-Flip Loan Approval?
A fix-and-flip lender will likely have a preferred minimum credit score for borrower approval, though it will be significantly lower than a conventional bank. Additionally, many lenders take your experience with fix-and-flip projects and how many properties you’ve successfully flipped into account.
Will a Past Bankruptcy Disqualify Me?
A bankruptcy indicates a financial setback in the past, but it doesn’t automatically disqualify you for a future loan. If this is the case, be upfront with your lender about your setback and let them know what you’ve done to recover. Similarly, this can apply to a past foreclosure. If you’re applying for a loan and have had financial setbacks, be sure to explain what led either of these things to happen, and how your current financial situation and experience can mitigate the risk of it happening again.
What Financial Information will be Required for a Fix and Flip Loan
As we’ve mentioned, qualifying for a fix and flip loan is quite different from other traditional loans. Your lender will likely be more focused on the property and whether the after-repair-value justifies the loan, as well as whether the renovation timeline and budget are realistic.
With that said, some financial documents such as bank statements, government-issued ID, a sales contract of the property, and your personal tax returns may be reviewed for loan approval. Your last three months of bank statements may be required to verify you have a bank account, and that you have the cash flow to make periodic payments. Additionally, lenders generally want to see one to two years’ worth of tax returns to ensure your annual income is consistent with your reported earnings, and that there aren’t huge fluctuations from year to year.
Next, you likely will need to discuss your track record with your lender. The following are some questions your lender may ask regarding your experience:
- How many deals have you transacted in the past 12 – 18 months?
- What is the average turnaround time on your deals?
- How many current projects do you have in progress?
- Where are your properties located?
While having experience with fix and flip properties or similar projects is desirable to lenders, it’s not an automatic qualification for a loan. In most cases, if the numbers make sense to the lender, you can still get a loan even if you’re new to the real estate industry.
Fix and flip loans are a great way to secure financing when the timeline or investor goals don’t allow for traditional loans. If you’re interested in getting financing for your next fix and flip project, feel free to contact RCN Capital today to learn more about our loan programs.