First of all, construction financing is more based on equity in a property than most anything else. Of course if you want to secure a bank construction loan, everything is going to be important (equity, repayment, and credit), but when looking at private mortgage construction financing (which is what most people utilize anyway for construction), the overall fundamentals of the project are what’s most important.
Bad credit is also very relative. If you have a low credit score, there can be numerous reasons and circumstances as to what caused it. Some private lenders will want to understand the story, some won’t even look at your credit at all.
The more severe your credit is, there is the likelihood that it could even impact private lender interest in your construction project, but certainly doesn’t mean that private mortgage financing can’t be arranged.
The keys to any construction loan application is the value of the existing property where construction will take place, the projected market value and market interest of the completed project, the equity the borrower or builder is putting into the project, the track record of the builder, and the exit strategy for paying out the private lender at the end of the construction period.
If the exit strategy is to sell the property and the buyer has already committed, then issues around personal credit may not have any bearing on the project. If the borrower or builder will need to secure a long term mortgage to pay out the private lender at the end of the project, then its far more likely that bad credit will enter into the decision making process and could cause even a private lender source to decline your request for financing.
Bottom line for bad credit construction loans is that as long as the borrower can protect the interests of the private mortgage lender during construction and through a well defined exit strategy, then construction financing can likely be secured.
The probability of securing a construction mortgage if you have bad credit will also increase when you’re working on a project in demand in a highly active real estate market where the potential risk of loss or long resale is very low.
If you need a bad credit construction loan, give me a call so I can quickly assess your situation and provide relevant construction loan options for your review and consideration.