How to Get a Home Equity Loan With Bad Credit – 5 Steps You Should Do

How to Get a Home Equity Loan With Bad Credit

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.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.

How to Get a Home Equity Loan With Bad Credit

 

 

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.

Cards with alternative written on them

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.

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8 Comments

  1. Nice articles on getting loans and credit. I started by reading your article on how to get a home equity loan with bad credit. I enjoyed reading it, but I really don’t need a line of credit at this time.

    So I also read your article on how to improve your credit score, which is something I really need to do.

    I like your suggestion about paying credit card bills twice a month. What a good idea.

    Thanks

    • Thanks for the positive comments on the articles.  Paying your bill twice a month is a great strategy, particularly if you are trying to improve your score.

      Some other things you might consider to improve your credit score is to not open new accounts, minimize the amount of credit you are using and keep your current accounts open and active.

      You can learn more by reading this article here http://bit.ly/2smuXS7.

      Thanks for visiting the site and please share it on social media.

      Patrick

      Credit Squared 

  2. Great article. I am getting ready to enter into a season where I will be looking at houses so any information I can receive on how to get a home loan is helpful. I look forward to reading more articles on your site because I think credit is very interesting.

    • Thanks for commenting on the post.  I’m glad you enjoyed it.  There’s lots of information here on how to find a home loan or a home equity loan for that matter, when your ready to find a house.

      Tell your friends and family about the site as there is a bunch of great content about managing your credit here and more on the way.  

      If you have any questions about financing when you get ready to buy a house, just send me a comment or email and I will be happy help out.

      Patrick 

  3. It’s a little discouraging to have bad credit. From what I’ve read, I can get a co-signer to help me with getting approved, or shop around for a subprime lender.

    These are some great tips! I just wish there were other things I can do to increase my odds, because getting a cosigner may be out of the question for me.

    I really want a home equity loan to fix some repairs that need to be done around the house as well.

    • Hi Jonathan – I’m sure it very discouraging when you have bad credit and can’t get the availability you need for financing what you need.

      It’s true, most people will never be able to find a cosigner, but if you have a friend or relative that trusts you it is possible.

      In the end it’s all about your credit score.  So if you can pay down debt and increase your limits, it might lift your credit score enough to get you qualified.

      If you have rehab work to be done around the house, you might investigate a FHA 203K rehabilitation loan.

      It can be easier to qualify for a 203K loan. Talk to a lender in your area to see if you might be able to refinance into one.  If you currently have an FHA loan you may also be able to do a streamline refinance.

      Check out this post on Zillow for a little more information.

      https://www.zillow.com/mortgag

      Thanks,

      Patrick

      Credit Squared

  4. Hi Patrick ,

    Thanks very much for writing this article. I can see it being very useful for those who are in financial trouble and are looking for some advice.

    In regards to your section regarding increasing your credit rating, what strategies would you recommend to try?

    Also do you have a list of lenders you would recommend speaking to who would be flexible to discuss options?

    Cheers
    James

    • Hi James,

      I’m pleased you liked the article.  My intention in writing the post was to help people learn how to get a home equity loan when they have bad credit.  I’m hopeful it will help folks out.

      I regard to your question about increasing your credit rating, here are a couple of tips you can use to get some quick results.

      Make payments strategically by making a payment twice a month.

      If you can, increase your credit limit but don’t spend it.

      Dispute flaws in your credit report.  You may find errors there that will help boost your credit score.

      You can learn more here: How To Improve Your Credit Score Quickly

      Thanks,

      Credit Squared 

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