People occasionally ask me about real estate investing with a criminal record. Can this be done? More precisely, can you buy a house if you have a criminal record?
The short answer is, it depends. A misdemeanor or felony may disqualify you from a traditional loan, but that depends on the lender. Hard money lenders review criminal background on a case-by-case basis. Crimes of moral turpitude (vile or evil) will absolutely disqualify you. More leeway exists with misdemeanors.
I’ll use this article to dive into more considerations about buying houses with a criminal record—and potential alternatives.
General Considerations about Investing with a Criminal Record
As stated above, when it comes to buying a house with a criminal record, it depends on a variety of factors. Before making a decision, lenders will likely want to understand the following information about the particular criminal record:
- Class of crime: Did you kill someone (felony), or did you steal a ham sandwich (misdemeanor)? I know that sounds like a tongue-in-cheek question, but lenders will look at some crimes quite differently than others. Broadly speaking, misdemeanors will have less impact on a lender’s decision-making than a felony, which can absolutely be a deal breaker. This is because, as a general class of crime, misdemeanors are less serious than felonies.
- How long ago: When you committed a crime will also matter to a lender. For instance, for a 30-year-old investor, a trespassing charge from when he or she was a teenager may not be a huge deal. On the other hand, if you were charged with trespassing last year lenders may worry about your reliability as a borrower.
- Type of crime: The specific crime you committed will also play a huge role in securing a loan. Of note, crimes of moral turpitude (utterly reckless or done with evil intent) will likely disqualify you from a loan to buy a house. These crimes tend to speak to someone’s character, and most lenders won’t want to provide a loan to someone who’s demonstrated moral failings in the past.
All of these items are just considerations. With the exception of some extreme situations (e.g. murder, large-scale fraud, etc.), most lenders won’t automatically deny a mortgage loan just because you have a criminal record. Instead, they’ll look at the overall facts and circumstances to determine whether to approve you for a loan.
Buying a Primary Residence with a Criminal Record
In addition to the above general conditions, why you’re buying a house will also play a role in loan approval with a criminal record. First, let’s talk about buying a primary residence with a traditional lender. In other words, assume you want to buy a home to move into with a mortgage from your local bank.
In this situation, the individual lender’s policies will dictate loan qualification and approval. Lenders can absolutely mandate background checks for potential borrowers. And, if they see a criminal record, they can legally deny your mortgage due to your crime. In that way, criminal background is not a protected status like race, religion, or gender (for which you cannot legally be denied a loan).
As a result, if a lender chooses not to provide you a home loan based on your criminal history, there’s not much you can do about it. However, you can look for other lenders. Lending to borrowers with criminal backgrounds comes down to internal policies. If one lender denies you, you can keep applying to other lenders in the hopes of finding one who’ll approve your loan.
Buying an Investment Property with a Criminal Record
Buying a house as an investment property has some different considerations if you have a criminal record. In particular, I’m discussing a loan via a hard money lender. Once again, it’ll largely depend on the unique circumstances of your crime, but here are some general guidelines:
- Crime of moral turpitude: If you’ve conducted a crime so vile or reckless that it qualifies as one of moral turpitude, no hard money lender will provide you a loan for an investment property.
- Financial crimes: Similar to the above, hard money lenders won’t issue loans to people who have financial crimes like fraud, money laundering, or major theft in their background.
- Other felonies: This will depend on the particular crime. It will be particularly challenging to qualify a borrower with a felony on his or her background, but it is possible on a case-by-case basis.
- Misdemeanors: As long as you haven’t shown a pattern of misconduct, hard money lenders will most likely provide you an investment property loan with a misdemeanor on your criminal record.
Alternatives if You Cannot Buy a House with a Criminal Record
Not qualifying for a home loan doesn’t mean you can’t invest in real estate with a criminal record. If you’ve been denied hard money loans due to your past, here are two alternatives:
With real estate wholesaling, you don’t actually need to qualify for a loan. As a result, it’s a potential investment strategy for people with criminal records.
As a wholesaler, you don’t purchase an investment property. This means you have no need to apply and qualify for financing. Instead, wholesalers find off-market properties and they enter contracts to purchase these properties. Rather than close on the purchases, they assign the contracts to a third party, typically a fix & flip investor. And, they assign these contracts for a fee. Wholesalers find deals, connect the sellers with investors, and collect a fee in the process—all without dealing with the headaches and criminal background checks inherent to qualifying for a mortgage.
If completely committed to buying a house, people with criminal records can also seek an expungement. Simply put, an expunged crime ceases to exist on your record in the eyes of the law. As a result, if you receive an expungement, you can apply for a mortgage, and A) you do not need to report the expunged crime to the lender, and B) the lender will not see it on a background check.
However, the availability of expungement will depend on a variety of factors. First, the state or county in which you were arrested will impact your options. For example, New York State doesn’t allow any expungements of criminal records. Second, even if the relevant jurisdiction does allow expungements, you’ll need to determine the legal and administrative procedures for seeking one. In general, you’ll want to know A) how to legally conduct the expungement process, and B) how much the legal work for an expungement costs.
Obviously, your best bet for buying a house is not committing a crime in the first place. But, we all make mistakes, and options certainly exist for buying a house with a criminal record.
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