How to Get a Home Equity Loan With Bad Credit
Home equity loans are an increasingly popular way for homeowners to finance a big expense, such as a remodeling project, new car, or college tuition. Home equity financing often requires a good or excellent credit score for approval. So what happens if you have bad credit? Good news! It’s possible to get approved and here’s how. Keep reading to learn how to get a home equity loan with bad credit.
1. Educate yourself On How To Get A Home Equity Loan With Bad Credit.
Decide if a home equity loan or a home equity line of credit (HELOC) is right for you.
A home equity loan uses a homeowner’s house as collateral. It’s essentially a second mortgage paid off through a fixed interest rate over a fixed period.
A home equity line of credit (HELOC) is like a second mortgage credit card, where the borrower can withdraw funds from a lender over a period of ten years and then pays off the balance at interest over a repayment period.
After deciding, know your credit report inside and out. You are entitled to one free credit report annually, accessible online. In addition, be sure to distinguish between Vantage and FICO credit scores.
Identify anything that may be an inaccuracy and have these fixed immediately.
Compile all of your financial information so you and your potential lender can have a visual of your proof of income, any investments, and current debt.
Determine how much cash you actually need.
Lastly, find a co-signer of your loan with a stable income and good credit if yours don’t quite meet the bar.
2. Assess the rates of competing lenders.
Research the lenders in your area or online and compare their interest rates for home equity lines of credit and home equity loans. Furthermore, look at credit unions in addition to local banks when comparing rates. They frequently offer better rates on home equity loans.
If possible, seek assistance from a professional in choosing a lender, such as your local mortgage broker.
Keep in mind that once you receive a quote from these lenders, you can negotiate rates.
3. Communicate with your lender.
Be honest with a lender about why your credit score is low. They will likely take into account anything that has been an obstacle to your good credit when proposing a rate, such as medical debt and unemployment.
Once you have a proposal, negotiate the interest rate, closing cost, and rate structure.
Gather multiple quotes from different lenders. You don’t have to act on any of them, but comparing them will be helpful. In fact, some banks are willing to reduce their offered rates if you mention that you are shopping around.
Remember to be on your guard. Some lenders will seek to take advantage of applying borrowers with lower credit.
4. Seek out other loan options.
If you are not approved for home equity financing, consider subprime lenders, who specifically service people with poor credit.
Also, you can still take out a personal loan with bad credit if you decide that home equity financing is not for you.
5. Improve your credit.
At the end of the day, increasing your credit score can only help in getting a home equity loan with bad credit. Reduce outstanding credit card debt and see if you can raise your credit limit. Brainstorm ways to increase your income.
Make sure you are paying all of your bills on time. This shows that you are a reliable borrower.
Developing further strategies to improve your credit score effectively and quickly will only boost your odds of being approved for a home equity loan at a reasonable rate.
Get Control of Your Credit With Our Free Ebook
* indicates required