The economy is in a less-than-perfect place right now, leading many people to have a hard time paying their bills and making ends meet. For homeowners with bad credit, home equity loans can provide a certain amount of relief that may be the difference between making through another month and falling into financial ruin.
Getting a home equity loan with bad credit is both easy and possible when looking in the right places. For a home owner, using this lending option to get cash in a pinch can be the best choice. However, there are important steps that you will need to follow before getting a home equity loan.
Step One: Talk to Your First Lender
The lender who first extended you the loan for your home should be your first stop when beginning this process. You need to talk to him about the money you still owe on this loan as well as the possibility refinancing instead of looking for a home equity loan, commonly called a second mortgage. Basically, the refinance may free up money for you and will prevent you from having to pay two loans each month instead of only one. The state of your credit - that is how low it actually is - will largely determine whether or not this is a possibility.
Step Two: Have a Credit Check
Most people with so-called "bad" credit may not understand what that means or where it comes from. Before you look for a home equity loan, understand what your credit score means and where it came from. This involves looking at two different pieces of information: your 3-digit credit score as well as your full credit report.
The credit score that you have is a number that falls between the numbers 300 and 800. Those with a score below 650 are then labeled as having bad credit, which can affect the terms of a home equity loan as well as your ability to secure one in the first place. Taking time to build up your credit score can really help in getting you a loan with good terms.
The other element that needs to be checked is your credit report. This is a detailed record of your assets, debts, and past repayment history. This will show you what is pulling your credit down and hopefully help you formulate a plan to make your bad credit improve. As an added bonus, doing this credit check will also allow you to look for potential errors that could be impacting your score.
Step Three: Research All Your Options
When looking for a bad credit home equity loan, borrowers need to make sure that the lenders they work with have a good reputation. Using the Better Business Bureau to research their history before making contact is a great start. This way, you know that the lender has been successful before and can hopefully extend you a good deal. Making sure that the lenders you contact run proven, legitimate business will have a direct positive effect on the loan that they can offer.
Finding the Home Equity Loan
Once you have all of these steps completed, getting a home equity loan with bad credit will be far easier. Make certain that you know who you are working with and what your options are to get the best deal possible.