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Can you get an investment property loan with a bad credit?

By Zarah Mae Torrazo 06 September 2021 | 1 minute read

Can you get an investment property loan with bad credit? The answer is 'yes' and here’s how you can do it.

investment property loan with a bad credit

Can you get an investment property loan with bad credit? The short answer is yes, it is possible.  If you have bad credit, it doesn’t mean that you don’t have the opportunity to explore the investment property market. 

The question you should be asking is: How do I get an investment property loan with bad credit? 

In this article, we’ll explore what options you have for investing in real estate when your credit is far from ideal.   

Understanding investment property loans with bad credit


Before we discuss the options available to you, it’s important to take a step back and ask yourself the following questions. 

  • Why do you want to purchase an investment property? 
  • Why do you have bad credit right now?

If your response to the first question is along the lines of making a quick profit or return on investment, you might want to hit the brakes here. 

Any experienced real estate investor would tell you, property is not a fast-growing investment. While it promises significant returns, this does not happen overnight. It will also require you to commit significant time and resources. While it’s possible to keep your day job, real estate is not something you can simply take care of during your weekends. 

Your answer to the second question is more important. If you are aware that your low credit score or your bad credit history is due to your bad spending habits or high debt, it’s advisable to re-assess your financial situation before you consider putting your money into an investment property. Most experts also recommend improving your credit before taking on a big financial responsibility.  

In other cases, some people may be debt-free, have healthy spending habits, and still have bad credit. You may have been a co-signer on a loan with someone who defaulted or missed payments, or had plenty of ‘bad marks’ during your younger years (derogatory marks on your credit report can last for several years), or you’re too young to have a solid credit history. 

If you fall under any of these scenarios and you have enough money on hand to invest, you can continue reading to find out how you can get approval for an investment property loan with bad credit. 

How to get an investment property loan with bad credit

Anyone who’s ever applied for a traditional home loan (or any other loan, such as personal loan, car loans, and credit cards) knows the importance of good credit standing. It’s almost impossible to get approved for a traditional home loan if your credit rating is bad — plain and simple.

Needless to say, if you’re applying for an investment property mortgage with bad credit, it will also be difficult and you will need to have a good strategy in place. 

Take note that the right solution will depend on your personal circumstances. If you’re dead set on becoming a real estate investor, here are some ways to jumpstart your journey.

1. Save enough money for a big down payment

This option is one where “easier said than done” applies. Simple in theory but difficult to practice, you could attempt to save up for a bigger down payment to offset your bad credit rating.

If you are able to pay a down payment of 20 per cent or more of the purchase price upfront, you can qualify for loans that would usually need a better credit standing. A large sum of money can help convince lenders that you have the ability to manage finances. While you may end up with a higher interest rate, you will still be approved for a loan.

2. Invest with a partner

You can choose to set up a partnership for the purpose of investing. A partnership is a real estate legal entity with two or more legal persons (or entities) joined together. 

There are several types of partnerships you can set up, each with its own benefits. Remember that the type of partnership you enter will determine how much paperwork (if any) will be needed. In some cases, partnerships can be informal and will not require paperwork and only a verbal agreement. 

For example, if you know someone with good credit who would be willing to take a shot at real estate investing, consider partnering with them. While you will have to split your profits with them, you have a better chance of getting a loan and you can jumpstart your investment property journey. 

A partnership will also divvy up management responsibilities, such as getting new tenants and maintaining your property. 

3. Find a private money lender

Private lenders are non-bank lenders or private individuals that loan money to borrowers. Typically, these types of lenders are willing to overlook a few red flags on your credit history, if they believe they can get a return on their investment in you. 

While major banks (such as the ‘big four’ Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank) have strict lending criteria, private lender entities have a more opportunity-centric approach in funding businesses, removing the usually tedious approval process. However, be ready to be hit by high interest rates at the price of this convenience. 

If you wanna skip going through institutions or networks for a loan, a private lender can also be a friend or a family member. Individual lenders will have different requirements, but generally, it’s a much faster and simpler process. Additionally, unlike with private lender networks, you’ll have a better chance of getting financing at a lower interest rate with an individual lender, since you’re most likely negotiating with someone you personally know.

4. Seller financing 

Seller financing, which is also known as owner financing, is a method of financing where the seller and the buyer reach an agreement on an instalment payment plan for the property.  

The terms of an owner financing agreement vary from case to case. Other sellers or vendors may request monthly payments, while others might ask for a quarterly payment schedule. For these transactions, a promissory note acts as legal proof of the buyer’s promise to pay their debt.

Seller financing provides more flexible terms compared to a traditional bank loan. Usually, sellers will require you to provide proof of income and a certain down payment amount before they agree to an arrangement.

Seller financing doesn’t have to go through a bank, so you will end up with lower closing costs since you won’t have to pay certain fees and charges charged by traditional lenders. Additionally, seller financing entails a much faster buying process. 

The main downside is that it can be difficult to find someone willing to sell through owner financing. While looking at listings, look at homes that are listed as For Sale By Owner (FSBO) and indicate that they are open to seller financing. 

If it’s not mentioned on the listing, it won’t hurt to reach out and ask if they are open to non-traditional financing terms. 

5. Real estate wholesaling

It’s common for property investors to do wholesaling when they’re just starting out.

In real estate, a wholesaler acts as a middleman between home sellers and buyers. Their role is to identify properties being sold below market value, acquire a contract from the seller, and then transfer that contract to a buyer or another investor. The wholesaler earns money by receiving a wholesaling fee. 

Because you’re not actually holding onto the property, there’s no cash investment involved. That means no down payment, no monthly mortgage fees, and no credit checks as your credit score often makes zero difference. 

A few wholesaling deals could also help you rebuild your credit and generate serious capital in the process.

However, wholesaling is no walk in the park. Building a list of good buyers requires significant research and effort. And unlike buying a rental property and becoming a landlord, it’s not a steady source of income and is all about short-term profit. So before you jump into the world of wholesale investing, make sure you’ve considered these pros and cons. 



Credit report

A credit report contains a detailed summary of an individual’s credit history and current credit situation, which is used by lenders as the basis for interest rates and the approval or disapproval of a loan application.

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Can you get an investment property loan with a bad credit?
investment property loan with a bad credit
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