Many homeowners want to take advantage of the equity they build up in their properties — but home equity loans, which are some of the most effective financial tools, are often only accessible if you have a certain credit score.
What if you have less-than-stellar credit?
There are a few ways to get a home equity loan, even if you’re dealing with bad credit — you just need to know where to look. Read on to learn more.
A home equity loan uses the equity in your property as collateral. In a loan, collateral is a guaranteed asset that the lender can repossess or sell if the borrower defaults on the loan agreement.
With a home equity loan, you borrow against your equity. For example, say that you’ve built up $100,000 in equity in your property. If you take out a home equity loan, your loan will be worth $100,000. If you don’t pay back the loan, the lender takes possession of that equity.
If you think this sounds risky, that’s because it can be, in some scenarios. The home is only used as collateral when the loan involves the property. For example, if you default on your car loan, the car is used as the collateral, not your property. Since a home equity loan is tied to the property, if you default on monthly payments toward the balance, no matter how small the balance, the lender can take possession of the home.
A home equity loan can be valuable in some cases, particularly if you don’t qualify for other conventional loans.
You might consider a home equity loan if:
In many cases, yes. However, some of the best home equity loans are only available if you have good credit.
Most home equity loans have a handful of requirements you need to meet, such as:
However, some home equity lenders may allow you to take out a loan with your equity as collateral if you have a credit score of 600 or less.
If you want to take out a home equity loan without amazing credit, you can usually find a lender willing to work with you.
Follow these steps:
A home equity loan could be a great option to access your property’s equity. You can use that home equity loan to pay off debt (as a means of debt consolidation), make necessary repairs to your home, pay off a sudden medical bill, and much more.
But what if you need money to pay off large debts, especially those already related to your property? And what if your mortgage payments are adding to your financial struggles?
In these instances, you may be better off co-owning with Balance.
With Balance, we’ll pay you a lump sum in exchange for a share in your property's future equity value and appreciation. You can use the cash to pay off debts, make any necessary home repairs or improvements, and build your overall financial profile. Plus, you maintain the right to buy us out at any point.
It’s more than possible to qualify for a home equity loan with bad credit, particularly if you take some time to prepare your application. However, don’t expect any home equity loan to get you out of a significant financial jam if your mortgage payments are too expensive for you to pay regularly.
If you’re experiencing long-term financial difficulties, consider contacting Balance. As home equity investors, our co-ownership arrangement with you could be just what you need to lighten the load on your bank account and get access to immediate capital for debt payments, student loans, and more. Contact us today to learn more.
Sources:
How a Home Equity Loan Works, Rates, Requirements & Calculator | Investopedia
Understanding your home's equity | Freddie Mac
Home Equity: What It Is, How It Works, and How You Can Use It | Investopedia
