You've heard me say that anyone can achieve financial independence through real estate – even people who traditionally have a hard time getting loans. By that I mean people with no credit history, bad history, a high debt to income ratio or multiple mortgages.
You've heard me say it, but do you believe it? Probably not. If you're one of those people, and you've heard “no” before, you're probably thinking I'm a few cards short of a deck.
But, I'm here to tell you that you really can get ahead with no credit history. I've seen it happen again and again. Heck, it happened to me.
When I was a 22 year old high school dropout, just starting out, I had no credit history at all. I also didn't have two dimes to rub together. But I was able to get loans- and a few years later, when I owned more than 25 properties with mortgages on at least half of them, I kept on getting them.
How? First, like anything else, you have to educate yourself. You have to know what you're dealing with and what the lender is looking at. Then, you have to present yourself in the best possible light.
What To Do When You Have Bad Credit
The first step is to face your fears. Think you have a bad credit history, or not enough credit history? Get a copy of your credit report and learn how to read it. You can get one free report a year, and now it's easier than ever because you can get them online. Find out what it really says. Most of the people who think they have a credit problem really don't.
Don't get duped into paying for your credit report. You can get yours FREE once a year by going here: https://www.annualcreditreport.com
There are lots of resources to teach you how to interpret the information on your report – just search on the Internet or go to the library and you'll find plenty. You may find errors, or problems you can rectify quickly. It's worth taking care of those things – you'd be surprised at how much small changes can improve your score.
But even if the picture's not so rosy, you'll feel more comfortable talking to lenders if you know in advance where you stand. When you go to talk to a lender, take a current copy of your report with you – one that you've ran within the last 90 days. That'll show the lender you mean business – and he may give you some insight into what a lender looks for and how to address it.
What Is Debt To Income Ratio
What about your debt to income ratio? Check that out too. Basically, you just take your gross total monthly fixed expenses and divide it by your gross total monthly income. 40% or below is the standard – if you come in there, you're good. But that doesn't mean you're dead in the water if you're above 40%. Prepare a statement showing how the proposed deal will increase your monthly income – a lender will consider that in the calculation.
Get even more guidance to obtain the financing you need by talking with one of your local bankers.
What If You Have Too Many Mortgages
Once you get your business rolling, a lender may tell you that you can't have more than four mortgages. That's true in a sense, but it's not the whole story.
Secondary mortgage lenders such as Fannie Mae and Freddie Mac won't let you have more than four mortgages at a time with them – but not all mortgages are sold to the secondary mortgage market. Once you hit four mortgages, ask lenders about the portfolio loans they offer. These are mortgages that the bank keeps on its own books, instead of selling to the secondary market. Just by asking the question, you're showing the lender that you're a serious investor – and he'll be more likely to listen to your proposal.
What if you do all this, and you still get a no? Don't sulk out of there with your tail between your legs.
How to Handle Financing Rejection
Ask why – and be prepared to learn from what you hear. If your credit is bad, work on fixing it. If you don't have enough credit history, work on building one. If your debt to income ratio is too high, go through your expenses and see where you can cut. A lot of times, six months is enough time to make some significant progress on these things, and then you're ready to go.
Remember just because one lender says no doesn't mean that every lender will say no. Keep asking. You can get turned down in one bank and go across the street and get approved.
Just like anything else in this business – or in life – it takes persistence. You've got to keep feeding your mind, keep asking questions, keep learning from the answers – and then apply what you learn.