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.
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:
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.
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 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:
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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