Home equity loans are secured loans with your house used as collateral. Most people use these loans for expensive and major home improvements.
How much equity loan you receive depends on the difference of your home’s current market value and mortgage balance due. The moment you send out your application for a home equity loan, what happens is that you will borrow against your home’s equity or the current value of your house and the amount you pay on your mortgage.
Getting a Home Equity Loan If You Have Bad Credit
Just because you have bad credit doesn’t necessarily mean that you can no longer apply for a home equity loan. Every lender has a different set of standards for the home equity loans being offered that also come with different terms.
Many banks willingly approve home equity loans provided that your home has 15% equity, you have fair credit, stable employment and income, and a 43% or lower debt to income ratio.
Below are the basic requirements for home equity loans:
- 620 minimum credit score
- 43% maximum DTI ratio
- Home equity of 15% to 20%
- History of on-time bills payments
- Stable employment and income
Tips to Get Home Equity Loan with Bad Credit
Don’t let your bad credit stop you from getting a home equity loan. Use the following tips to help you simplify the process:
1: Review your credit report.
Any potential lender will check your credit report to determine their risk of giving you credit. Reviewing your credit report can help you pinpoint problems or errors. This will allow you to work on them before you apply for a home equity loan.
2: Make sure you have sufficient equity.
Before you apply for a home equity loan, see to it that your home has 15% to 20%. You can get better rates if you have more equity. You can calculate your loan-to-value ratio to know your equity.
3: Know how much you really need.
Prior to borrowing money, it is important to determine how much you need in the first place. Don’t fall into the trap of borrowing more money than you need. You can reduce your chance to get a loan if you go too high. Being eligible for a higher loan doesn’t always mean you should borrow that whole amount. A bigger loan can increase how much the interest will be.
4: Look for a co-signer.
When you have too low credit to the point that you won’t be able to get a loan, you can look for a co-signer. The two of you will apply for the loan and will have equal responsibility for it. While your co-signer might have no intentions to pay back the loan, they will have the responsibility for it on paper. Your failure to repay the loan can make their credit suffer.
5: Improve your credit first.
Finally, if you have sketchy credit, you might want to boost it first before you apply for a home equity loan. This process might take some time, though, so it might not be the best idea if you will need to get the loan right away.
Here you can get tips for getting Business Loan.
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