In the current economic conditions, bad credit seems to be a reality for many people. If you are worried that your poor credit score will impact your ability to find a home equity loan, you are wrong. In fact, despite the shaky economy, several lenders are willing to work with homeowners to get them the money needed to finance home improvement or anything else.
Home equity lines of credit are actually one of the best choices for those with bad credit scores to get money in times of need since they are secured loans. There are several steps that you need to take before talking to a lender about a home equity loan, however.
STEP 1: Talk to Your Initial Lender
Before you begin the process of finding a home equity loan (also known as a second mortgage) your first stop should be at the lender who initially financed your purchase. He can give you details about what you still owe as well as the amount of equity, that is, total money available, that you have on your home.
Your first lender may also be able to discuss the possibility of a refinance with you, if that route offers you a viable alternative to getting the money you need. Refinancing your current mortgage may be a good idea since, rather than making two payments on two mortgages, your first one and your home equity loan, you can continue to make one payment. Depending on how bad your credit score is, this may or may not be an option.
STEP 2: Check Your Credit
There are two important things that you should know before talking to a lender about your options for a second mortgage loan: your credit score and your credit report. First, you need to know your three digit credit score. This number, which will be between 300 and 800, tells the lender how creditworthy you are. Any score below 650 is "bad." Credit reports, on the other hand, tell the lender the details of why your credit score is low.
Make sure that you get a copy of your credit report and carefully review it. There may be mistakes on that report that are bringing your credit score down. The more actions you can take to improve that three digit score, the better off you will be in terms of finding a home equity loan.
STEP 3: Research Your Options
The final step you need to take involves getting to know potential lenders. Rather than calling them and getting a sales pitch, be sure to look through reputable resources for additional information about their business practices. The Better Business Bureau is a great first stop. This independent agency will rank the lenders you consider and give them a grade which is based on their past performances and customer satisfaction.
Similarly, looking at lending resource websites and talking to other borrowers about their experiences can provide additional insights on lenders to look out for and those whose practices are on the up and up. The quality of the lender you work with will directly impact the deal that you get and your ability to repay your home equity loan.
Ready to Get the Money
Once you have completed these steps, you are ready to contact those reliable lenders. Make sure that you are up front about your bad credit. Home equity loans are still available to you, despite your credit problems, and honesty will go a long way in securing them.