Tips for obtaining a Home Equity Loan if you have Bad Credit

Home Equity Loans have been very popular for about the last 20 years. In many housing markets since property values have soared, home owners have been eager to take advantage of the rising property value and take out a home equity loan. Many homeowners like the lower interest rates and tax deductibility of these loans. However, even though home equity loans are secured by the homeowner's property, those with bad credit may still face obstacles. So what can a homeowner do if they still really want to take advantage of their home's equity but they have bad credit?

Get a credit report

The first thing any homeowner should do is to get a copy of their credit report. Everyone is allowed one free copy of their credit report per year. Knowing where a person stands credit wise will help them when they go to look at home equity loan programs. It can also help the homeowner to repair their credit to the best of their ability before going to look for a loan program. There are many methods of credit repair out there, and putting in the effort to repair one's credit report will serve them well in the long run.

The second thing for a homeowner with bad credit who wants a home equity loan to do is to explore their options. One such option is Cash out Refinance which allows the homeowner to refinance their current mortgage for more than it's worth and thus the homeowner gets the extra cash. However, one word of caution on this type of loan is that the homeowner must make sure they can afford the larger payment that will result from this type of mortgage. There are other options as well, so any homeowner should do their homework and research their options before they sit down with a lender. It's always a good idea for someone to know what to expect while shopping for a loan. A good place to start would be on a site like Lender411.com where you can research local lenders who specialize in home equity loans.

Factors that determine qualification

Here is an idea of what a lender will be looking for. The lender will want to see a good credit history, specifically what the history of payment has been like. If the homeowner has bad credit, also having bad history could hurt them when trying to obtain a home equity loan. However, the lender will also be looking at the loan to value ratio (what the home is worth versus how much is still owed on the home), and the homeowner's income and job history. So while having bad credit could hurt the homeowner's chances at getting a home equity loan, it is not the only thing a lender will consider when determining if they will give the homeowner a home equity loan.

To get a full list of the uses of home equity loans, we suggest you continue reading our Home Equity Line of Credit article.