What effect does purchasing multiple properties have on your credit score? If I make my payments on time every month, I know this will raise my score. However, taken on more debt (especially SFH) may lower my score. So to the experience investors has purchasing a lot of properties raised or lowered you score?
Thanks,
Lost In REI
My credit score has gone up a little after purchasing several dozen rentals in 4 years. I don’t know why it would go down. The more rentals you own, the more money you make IF YOU BUY RIGHT.
Mike
Mike,
Does your credit score down a little at first when you purchase a new property and then progressively go back up to where it was higher than before? Or do you not use “traditional” loans at all?
I have used traditional bank loans for the majority of my properties. However, I can not honestly say that my credit score has changed as a result of my rentals.
Mike
Thanks Mike,
When you take out more loans and they do a credit check, I would think that would lower you credit score. Especially if you are aggressively purchasing a lot of SFHs. I don’t think I would have a problem with obtaining conventional financing. However, since I plan on becoming independently wealthy sooner than later, I hope purchasing (with a solid business plan) a lot of properties isn’t hampered by either my credit score being lowered or I having too many properties.
Thanks,
Lost In REI
I'm not sure why you think your credit score would go down...you ask about having multiple loans, so, no, your credit score will not go down because of "hard inquiries" e.g. banks checking your credit during ONE underwriting. I suspect that it would be possible to go to a mortgage broker who decides to try to get a loan for a client by asking, let's say, 50 mortgage lenders if they will do your loan. That would lower your score because presumably, you cannot afford the loan, but you are going to keep asking different banks for money until you get it.
If you let your debt to income ratio go too high, it shouldn't affect your credit too much, but it will become much more difficult to persuade an underwriter to give you the money. This is part of what Mike means when he says "if you buy right." If your properties cash flow, your credit score should actually go up as you buy more properties and pay more installments in a prompt and consistent fashion.
So maybe I should buy Mike’s book to learn how to “buy right”. :smile
I’m a fan of commercial loans. They are easier to get. Commercial Loans also don’t show up on your credit report unless your deliquent or mess up. These work for me and what I do.
I’m not a credit expert but each brand new loan will bring your score down because its a new account. After its seasoned your score should return to normal. The more debt you take will keep your score from being as high as somebody with less debt but as long as you pay your bills on time it isn’t affect your score so much you couldn’t get a loan.
Either way works. Just pick what fits your game plan.
the Freddie Mac?fammie Mae limit is 10 loans on your record. Since more loan originators want to sell to those guidelines, the range of options narrows beyond that. Some bank or particular loan programs will have lower limits (such as 6). I would image that number of folks willing to do non-Fannie/Freddy loans out there is signifcantly smaller these days and will command a premium interest rate.
Yes, I have found some small local banks will do portfolio loans, but really not for regular SFH. They usually like to originate the loans and sell them off as it bring in immediate income for them. With that said, every bank is different, so you just have to go and sit down and talk with those folks, but don’t think just becuase you say you are an real estate investor that they will eagerly be ready to do a loan for you. In my experience, they are very conservative and like to see assets, lower LTV and experience at handling rentals. Lower LTVs can be achieved by buying at a steep discount (when you find it) that are typicaly for private party transaction with a highly motivated seller.
lastly, pulling lot of loans will bring your score down temporary, but it will recover in 6-12 months. I have huge stack of loans and my score still runs in the high 700s.
Just remember- You can’t buy food with FICO!
Work on doing things that generate income and wealth for you, these activities pay your bills. If you have an 800 FICO and no properties you will starve.
On the Contrary,
If you borrow some HONEY and pour it on the FICO score document, it makes quite an appetizer.
Try it sometimes.