Homeowners with bad credit are generally not as out of luck as they may think when searching for a loan. Even with bad credit, home equity loans are available to you if you meet certain qualifications. In fact, a home equity loan, which is also called a second mortgage, may in fact be the best option available to you if you need cash in a pinch.
However available they are, home equity loans are loans. Therefore, homeowners with bad credit need to know a few key facts before starting the lending process. Review the following four questions. Once you know the answers to these questions, you will be ready to find one with bad credit.
Question One: What is your home equity?
In order to qualify for an equity loan with bad credit or with good credit, you need to first know the equity you have in your home to begin with. Equity is a simple calculation of the true value of your home (that is, the assessed value, not what you paid for it) minus the amount that you currently owe on the initial home mortgage.
In order to determine your home equity, and therefore the maximum amount of the loan you can take, you need to have an independent assessment of your home completed.
Question Two: What, exactly, is your current credit score?
Many people throw the term "bad credit" around without really understanding what it means. The FICO credit score that you have will fall anywhere between the numbers of 300 and 850. A person whose credit is below 600 has poor credit. However, a score that is between 600 and 650 is not much better. Ideally, lenders want a credit score about 720 to give you the best interest rates possible.
Before you look for a home equity loan for bad credit, first determine how bad your credit is and what it is that bad. Review your full credit report and look for any issues such as mistaken information or identity theft that could be dragging your score down. Above all, work to understand why your credit is bad in the first place and make changes immediately.
Question Three: What lenders are the best fit for your situation?
Many people understand that poor credit is a barrier to finding an equity loan. However, they do not realize that there are special lenders out there who actually specialize in working with borrowers who have poor credit. Home equity loans are given by these lenders every day and they are not the lenders at your local bank. Quite frankly, anyone who is looking for a home equity loan with bad credit is best to go to online lenders rather than traditional financial houses.
Question Four: Who can best serve you?
This is not to say that all online lenders are created equal. It is still very important that you take the time to compare the different packages offered by 3-5 lenders before making any decisions. Make certain that you take the time to compare interest rates, fees and other requirements before making a decision.
Home Equity Loans with Bad Credit Are Possible
At this point it should be clear: home equity loans with bad credit do exist. However, there is still work involved before jumping into the lending process. By answering these four questions honestly you will get on the right track to getting the home equity loan you need.