Private and hard money lenders generally do not have a lot of requirements when it comes to credit history and financial documentation. Equity is the primary factor in a private lender’s decision to fund a loan. For a purchase, how much equity (or cash) is the borrower bringing to the closing table. For a refinance or cash out, is there a sufficient amount of equity (35% for most private loans)? For a residential fix & flip, will the after-repair value result in at least 35% equity, and how much is the borrower contributing to the project?
That said, some lenders do have a minimum credit score requirement. Here on PrivateLenderLink.com, every lender must indicate their minimum credit requirements, if any. Even if the credit score is not a factor, lenders may check a borrower’s credit report to make sure there is no fraud, judgements or liens which may affect the lender’s security.
Many private lenders will ask for 3 months of bank statements to make sure the borrower has enough money to pay any expenses required to operate the subject property. For a commercial property, the lender will want to see a rent roll to make sure the income is sufficient to make the interest payments. For a rehab fix & flip project, a lender may be funding most of the project costs, but they wants the borrower to have some cash in the bank in case the project goes over budget.
We’ve seen some lenders use the borrower’s credit score to determine the interest rate and fees. Regardless of the loan-to-value, a lower credit score may give a lender a reason to charge a higher interest rate and additional origination fees.