It’s a well-known fact that a low credit score means less opportunity. This can be disheartening if you’ve had trouble with credit in the past and therefore have no means to boost yourself up. Luckily, when it comes to fix and flip loans, a lower credit score doesn’t always mean a higher loan rate.
A loan rate is based on covering risk. But when it comes to risk, there are more ways to measure it than a credit score. We’re talking about the experience a person has when it comes to fixing and flipping houses. The amount of experience is just as qualifying as a credit score when it comes to quoting a loan rate.
When it comes to fix and flip loans, a credit score as low as 680 (or under) can secure you a private loan – even if you’re a new investor with little to no experience.
If you have more experience, you will enjoy an even lower rate when it comes to the loan – especially when working with local lenders.
How much experience do you need to qualify for a lower rate?
There isn’t a one-size-fits-all answer, as much as we’d like one. All fix and flip situations are different, and no result looks the same. Even results from the same client look different from the first flip, to the second, to the third.
That’s not the only variable, either. Lenders must also look at the state of the market during each flip and how you dealt with it, and what you learned from the experience.
Lenders must also do a basic financial review, which entails credit score analysis, income study, and taking a look at your cash balance – this helps to evaluate your borrowing risk, and brings them to the final decision on your rate.
Two things you must remember when it comes to loan rates and credit scores
- If you are an experienced investor, you don’t have much (if anything) to lose when it comes to shopping around for loans with low rates. Take time to make sure you get the best deal possible.
- If you aren’t as experienced, there’s no gatekeeping when it comes to fixing and flipping. Many lenders enjoy helping people break into the business, and a low credit score shouldn’t keep you from trying. Lenders already cover risk by holding your investment property as collateral, which places the importance of credit even lower.
Most importantly, work with local lenders that see their clients as individuals, instead of a national level that sees each client as a number. You will end up valuing the human aspect when it comes to securing your fix and flip loan.