The financial potential that a home has can make all the difference when financial troubles have hit a family. What exactly the cause of those troubles is can vary, from an unexpected job loss to a sudden illness that has prompted large medical bills. Whatever the reason, however, the ability to access home equity loans can alleviate the pressure significantly.
Unfortunately, financial difficulties usually are accompanied by a bad credit rating. This can make the task of getting a loan more difficult, but loans approved based on home equity value are not impossible to get ones hands on. It could hardly be when the loan is connected directly to property, collateral that is amongst the safest in existence.
What is more, loans through equity in the home can raise far higher loan sums than personal loans, and this can be critical depending on the size of the debt needing to be cleared or managed.
The existence of bad credit means lenders will be cautious, but there are some steps that can be taken to ensure the smoothest possible application process ends successfully.
Make a Structured Approach
The first step to securing a home equity loan is to know why you are applying for one. This may sound ridiculous but the fact remains that lenders like to know what the money they are lending will be used for.
Using the money to clear credit card debts, pay medical bills or simply consolidate a range of debts are all positive motives. Financing a family vacation is not. This answer may make getting any loan approved based on home equity slightly more difficult.
Do Not Be Greedy
Since loans through equity in the home can reap such large sums, it might be tempting to seek $100,000 instead of the $50,000 that is actually needed. Lenders are not particularly impressed when applicants seek much more than is actually required, as it suggests that the home equity loan is designed more to feed a lifestyle than for the purpose cited.
Remember too that the larger the loan the bigger the repayments, which means temptation is likely to create more financial strife rather than actually alleviate it. If the sum required is large, however, it is a good idea to have the house appraised since, with the loan approved based on home equity value, it is important to know the limit available.
Know Your Credit Score
While a bad credit may not prevent securing loans through equity in the home, the score will have a bearing on the limit and the interest rate applicable.
A very low score of around 400 is likely to prompt a high interest rate and a low sum to borrow, but the higher rate of over 700 can secure a home equity loan at lower rates and a large limit. Knowing your credit score can, therefore, help decide the best sum to seek.
Seek the Best Deal
It is never wise to accept the terms that are offered by the first lending company. In fact, it is important that shop around to ensure the best terms are secured. Online lenders are happy to offer loans approved based on home equity, with far less restrictions, faster approval waiting time and, usually, better interest rates.
Even with bad credit, applicants for loans through equity in the home are relatively straight forward to secure. All that is really needed is proof of income, of age and of citizenship, and a home equity loan can be approved within 24 hours.