Credit scores are the most valuable asset a real estate investor can have. It helps retain an attractive mortgage and helps with refinancing rates. It amplifies an investor's negotiating power when seeking a loan.
The importance of a quality credit score should never be undervalued. Great credit equates to better deals and money saving; provides multiple options to finance real estate and navigate mortgage lending process.
FICO, the most popular scoring model shows level you fall in:
300-600 = bad credit
601-649 = poor credit
650-699 = fair credit
700-749 = good credit
750-850 = excellent credit
**There are several different scoring models that have their own evaluation system though they are all similar**
A typical credit score calculation takes 5 major factors into consideration:
-Payment history: 35%
-Outstanding Balance: 30%
-Length of Credit History: 15%
-Types of Accounts: 10%
-Credit Inquiries: 10%
The first step with the home buying process is taking a look at your credit score; it decides what type of home you qualify for and it determines what loans and such you will need.
- Hard Money Lenders: Individuals or businesses that provide high interest rates and short term money to investors. They pay attention to the value of the deal and not so much on the credit score.
- Private Money Lenders: Private groups or individuals that set their own criteria. Credit score may play a factor but they look to diversify money into their investments.
- Asset-Based Lending: Beginners with bad credit, lenders are terrific to have because they're driven by value of investment properties than credit scores.
- Speed of Purchase: Investors that are short on time, lenders can fund loans between 7-21 days, oppose to 90 days like the banks typically take.
- Wholesaling: Finding properties that can be acquired at significantly lower market value controlling them through use of special agreement. Then find a buyer willing to purchase contract.
- FHA Loan: Requires credit score of 620, minimum down payment of 3.5%. Must have 2 year history of income and on-time payments.
- Subprime Loan: Offers different types of non-qualified mortgage programs designed to assist those with below par credit scores. A minimum credit score is required but there are still programs that fit specific scores.
Credit scores are the most important factor for any type of investment and are usually the kickstart to most. Having good credit makes everything easier, though there are still ways to make a bad credit score work!