While few would dispute the benefits of conventional financing (less fees, more lucid offers, and greater flexibility in the purchase of a larger number of properties), not everyone interested in investing in real estate can meet the qualifications that formal lenders have. While the inability to qualify for a conventional loan is no reason to forgo investing in real estate, it is still important to understand the reasons for your incredibility and work to reverse them.
The most common reason for someone not to qualify for a conventional loan is bad credit. If this is the case know that there are ways to improve your credit score- there are countless research services that offer financial counseling (so that you can eliminate bad habits) and work to ameliorate damage that has already been done. The easiest way to improve your credit score is simple- reestablish your credibility by doing what you say you will when you say you will. Stop buying things you can’t afford and make a point to save 10% of your income, while directing 10% to investments.
That being said, with the current credit crunch, even those reliable investors may have a hard time qualifying for loans. Consider unconventional financing sources like mortgage brokers, private lending, hard money lending, partners, and seller financing. Private lending offers security to investors who are sick of losing money in the stock market and accepting low interest rates from the bank. By investing in a real estate investor they stand to earn as high as 18% on their initial investment and enjoy the security of the option to repossess the house if the borrower stops paying. Although usually at the cost of high interest rates, investors can finance up to 100% of their deal with hard money lenders, where the property is used as collateral on the loan. Those interested in Houston real estate investing are no stranger to seller financing- at any given time on MLS there may be up to 900 properties expressing an interest in this. This lending option has little credit requirements, and allows the seller to receive payment directly from the buyer.
If these unconventional options appeal to you, be sure to evaluate the pros and cons of each according to the specific property you’re considering. It’s also generally a good idea to consult real estate investing mentors who can walk you through the process and make sure you are making the right decisions.
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