If you need the cash, you may be looking at several ways to get the money quickly. Some popular options include a credit card or a home equity line of credit. Another popular alternative is the home equity loan, which often has a lower interest rate than these other options. The downside is that the interest rate is often higher than that of a mortgage. Even so, if you have money sunk into your home, this may be the most affordable way to access a loan.
A home equity loan taps your property for cash, allowing you to withdraw a portion of the investment you’ve made in your home. With bad credit, a home equity loan is a little more complicated. As with any loan, you must be able to show you can borrow and repay money responsibly. The loan provider wants to make sure you can make the repayment according to the terms provided.
Creditworthiness plays a key role in determining how much you qualify for a home equity loan. For those with a history of bad credit, dont feel discouraged though! This is how you can still get a home equity loan with bad credit.
Lenders allow up to 80-85% of your home’s market value to be turned into a home equity loan. Precisely how much of that is accessible to you relies on common factors, such as income, your credit score, and the overall value of a property. The loans are paid in full upfront and are oftentimes used for large one-time expenses, like medical expenses or post-secondary education.
Bad credit is going to stand in the way of you getting the ‘most favorable’ terms on a home equity loan. This doesn’t mean you won’t qualify, however. The first step is you need to prove you have a stable job with a reliable paycheck. If you have been recently laid off, furloughed, fired, or decided to quit your job, it may be best to wait until you have reliable employment before applying for a home equity loan.
There are several agencies that will offer a free copy of your credit report. Order one. Verify the information you see, noting any inaccuracies. You may find things that have gone unpaid or outright errors. Take immediate steps to resolve these. This can really boost your credit rating quickly which will help your case in applying for a home equity loan.
You’ve grounded down your credit for a reason. Address it at the root cause. Create a budget weekly and monthly, maximizing the amount of money you’re putting away to pay down any credit card balances still owing. Make sure bill payments are covered long-term as well. A budget is going to be key to paying off your debts. It will also help you get on the right track for managing more debt.
Bad credit doesn’t sink anyone so long as they’re pursuing the necessary action to fix their situation. Work on it. Take six months to a year, if you can. Focus on making payments on time. Even if you aren’t paying down debt quickly, on-time payments say a lot about you being able to take on responsibility. Any credit score below the mid-600s is going to have a near-impossible chance at qualifying for a home equity loan. Ensure you build yours above 650 at least.
You pay full interest on the lump sum you borrow even if the home equity loan just sits in your account. Define a purpose for the loan. Write down to the cent how much money you need. It can be tempting to give yourself some cushion and add a little more on top but if you do this, beware. You are paying interest on every dollar so ensure you have a good reason to take the amount you’re aiming for.
You shouldn’t be walking into a lender’s office without a definitive way to repay them and return their investment in you. A home equity loan is a big risk if you do not. It adds more debt onto a property and further exposes you to a potential foreclosure down the road if you cannot pay. Don’t take out more than you can realistically pay back and do not commit to a payment schedule that you know is not going to work long-term.
Speak with a few different lenders. Be upfront in stating that you know you have bad credit. Ask for what they can offer. Some lenders may be willing to work with you. If you can demonstrate that you have income, you’re paying down debt, and your credit rating is improving, a home equity loan may not be as out of reach as it initially appears. Bad credit is not a life sentence. While it takes time and lots of work, you can overcome this!