5 Collateral & Hard Money Loans for Bad Credit

There are several types of asset-backed, secured loans that you can get if you have bad credit. Payday loans, pawn loans, and car title loans are all forms of collateral loans; you put up something valuable — a paycheck, car, piece of property, etc. — to get a loan, and if you fail to pay back your loan, the lender takes the collateral. Lenders provide these types of secured loans when lending to people with less-than-perfect credit because there is more incentive for the borrower to repay the loan.

A “hard money” loan specifically relates to real estate, and it is another option for borrowing with bad credit. Whether you’re trying to finance an investment property, buy a new home, or save the home you’re in, a hard money loan from a private lender uses real estate as collateral and may help you when a bank won’t.

We researched the major hard money lenders in the U.S. — while these lenders do conduct a credit check before lending, most do not have a minimum credit requirement for loan approval.

Below, we have the details of each of these lenders, including their areas of operation and loan terms, as well as a safe borrowing checklist to help you find the right hard money lender for your investment property or home.

We’ve Done the Comparing for You — Here’s What We Recommend

Although you may need a cosigner if your credit score falls below the range of fair (under 600), Lima One Capital will likely offer the best terms for a hard money loan. Lima One Capital has high maximum loan amounts, as well as lower interest rates and fees than its competitors.

If you truly have poor credit and are not able to get a cosigner, FBC Funding also offers favorable loan terms and will lend to borrowers with credit scores around 550. Both Lima One Capital and FBC Funding are licensed to lend in most states.

Nationwide Hard Money Loan Providers

Below, we list the major hard money lenders for bad credit, ordered starting with the best overall options.

The following companies are qualified to lend in most parts of the U.S. and will work with you even if you have bad credit. However, note that none of these lenders offers hard money loans for owner-occupied properties.

Lima One Capital

• Service area: 41 states and the District of Columbia
• Loan amounts:
  • Up to three years on rental properties: $50,000 to $2.5 million
  • Up to two years on multi-family buildings with five or more units: $250,000 to $5 million
  • Long-term loans for rental properties: Minimum of $50,000 and a maximum of 75% of the property value
• Credit requirements: Lima One’s FixNFlip program will let you borrow with a cosigner if your FICO score is under 600. Other loan programs require a credit score of 620 or higher.
• Collateral property type: Non-owner occupied single- and multi-family residential investment properties (no owner-occupied properties). If you own another property, you may be able to use it as collateral for your down payment.
• Interest rates: Vary from around 5% to 12%, depending on your credit score and the type of loan
• Terms: Fees start at 1.5 points, plus closing costs. Short-term bridge loans may be up to 70% of the After Repair Value. Loan terms range from 13 months to 30 years, depending on the type of property and the loan structure.
• Find out more or apply

FBC Funding

• Service area: Lends in 42 states
• Loan amounts:
  • Residential loans: Starting at $75,000
  • Multi-family, mixed-use, and construction loans: Starting at $100,000
  • Commercial building loans: Starting at $150,000
  • Investor Bridge program: $2 million maximum
• Credit requirements: FBC’s Investor Bridge loans have no minimum credit score, as long as you prepay four months of interest and meet other financial requirements. Other loan programs require a minimum score of 550.
• Collateral property type: The Investor Bridge program applies to residential properties. With other loan programs, you can borrow against residential or commercial property, including single- and multi-family homes, mixed-use buildings, mobile home parks, offices, student housing, hospitality properties, retail spaces, and self-storage buildings.
• Interest rates: Ranging from about 7% to 12%
• Terms: Fees range from two to five points. FBC requires a loan-to-value ratio of 70% in the Investor Bridge program, but if your credit score is 650 or higher, you can get up to 75%. FBC offers interest-only loans for 12 months.
• Find out more or apply

LendingHome

• Service area: Operates in 25 states; you can check the LendingHome website to see if it lends it your state
• Loan amounts: Typical hard money loans are offered from $75,000 to $1 million.
• Credit requirements: LendingHome requires a minimum FICO score of 550, proof of income, and a background check. The terms of the loan are based more on the value of the property than on your credit history.
• Collateral property type: Hard-money loans are offered as short-term bridge loans on residential real estate, including single-family homes, multi-family buildings up to four units, condominiums, town-homes, and planned unit developments.
• Interest rates: Starting at around 7%, and the average range is about 9% to 12%
• Terms: Fees start at $2,500 and go up to 2.5 points. LendingHome will finance up to 90% loan-to-value and 90% of the purchase price. There is an application fee of $350, and you will need to pay upfront for the property appraisal and some initial rehab costs. Loan terms must be 12 months or less.
• Find out more or apply

Patch of Land

• Service area: Nationwide except for Arizona, Idaho, Minnesota, Nevada, Utah, and South Dakota
• Loan amounts: Range from $100,000 to $3 million, depending on the type of property.
• Credit requirements: Patch of Land requires a credit check, but there is no minimum score. You’ll need to provide proof of funds and pass a background check.
• Collateral property type: Non-owner occupied residential properties, including single- and multi-family homes, condominiums, and townhomes. The company also lends on commercial properties, including mixed-use buildings, office and retail spaces, and light industrial buildings.
• Interest rates: Start at around 8%
• Terms: Fees include your appraisal, closing costs, and origination points based on your loan terms. Patch of Land will finance 70% to 80% loan-to-value, depending on the type of collateral. Loan terms are one to 12 months, with six-month extensions available.
• Find out more or apply

Do Hard Money

• Service area: Lends in 34 states and the District of Columbia (either directly or through a referral network)
• Loan amounts: Up to $250,000
• Credit requirements: A credit check is required, and your score will affect your interest rate and fees. There is no minimum credit score. As long as the value of the property makes the loan worthwhile, Do Hard Money will lend to you.
• Property type: Short-term loans on residential investment properties, particularly for rehabbing and flipping
• Interest rates: Quoted per month
• Terms: Fees start at 5.5 points, plus closing costs. Do Hard Money requires a loan-to-value ratio of 70%, which is calculated against the value of the property after repairs. The result is the company may lend up to 100% of the purchase price, including closing costs. The maximum loan term is five months.
• Find out more or apply

Safe Borrowing Practices

When considering a hard money loan, there are some important questions you should ask the lender. Hard money loans and private lending, in general, are regulated differently than standard consumer loans, and there are some lenders who look to take advantage of borrowers with poor credit. You can use the checklist below to identify and protect yourself from predatory loans.

Licensing

Is the lender licensed in your state? Some states allow private lenders to make a small number of loans without being licensed, but this is not always the case. Exact licensing requirements vary by state, but generally, a license ensures that the lender has met the state’s education and testing requirements and has submitted its financial reports to the state for review. You should be able to find a lender’s licensing information through the Nationwide Multistate Licensing System.

Interest Rates

Is the lender’s interest rate legal? Individual states set their own usury laws that cap the amount of interest you can be charged on a loan. Check your state usury laws through the FindLaw directory. Interest rates can be particularly high for customers with poor or minimal credit history, but lenders must still comply with state law.

Payment Structure

Will you be making regular monthly payments? Do the payments apply to the principal loan amount, or is this an interest-only loan? What happens at the end of the loan term? Will you have a large “balloon” payment due? What will happen to your property if you can’t make the balloon payment? It’s important to get these answers from your lender, so you’re prepared to pay back the loan according to the lender’s terms, avoiding missed payments and similar risks.

Fees

Typically, a lender charges “origination points” when you take out a loan. Essentially, you’re pre-paying a few percentage points of the interest rate upfront. You may also have to pay out of pocket for a property appraisal, closing costs, and other fees. Some lenders will finance these costs into the loan amount. Others will require fees to be paid at closing. Make sure all fees are disclosed in writing before you agree to anything, and if payment is required at closing, make sure you have the money you need before signing on the loan.

Lawyer Approval

To make sure all of your loan documents and terms are correct and understood, consider hiring a lawyer to review them for you. You can find a local lawyer who specializes in real estate through FindLaw or find a lawyer with peer and client reviews through the Martindale-Hubbell legal directory.

In Summary

A hard money loan from a private lender could help you finance an investment property or save the home you’re in. If you have bad credit, there are several lenders that will work with you. For the best loan terms, Lima One Capital will likely be your best bet, but you will need a credit score in the fair range to lend without a cosigner. If your credit falls below this range, consider FBC Funding for comparable terms. While the lenders listed above are all reputable companies, there are plenty of predatory lenders that try to take advantage of borrowers with poor credit. Before you sign for any loan, you can use our safe borrowing checklist to vet your lender and find the right hard money loan for you.

For more on loans, see our in-depth explanation of the different types of loans you can get based on your needs.