How To Get a Home Equity Loan for Bad Credit

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.

What Is a Home Equity Loan?

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.

Why Might You Use a Home Equity Loan?

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:

  • You need to consolidate debt. For instance, you can take out a big loan for $100,000 or more using your home’s equity, pay down your existing debts, then only have one remaining debt payment to whittle down over time.
  • You need access to immediate funds for a medical emergency or some other purpose. It’s often easier to get a home equity loan than another loan if you don’t have an existing relationship with a bank or credit union.
  • You want to use the equity in your property to finance home renovations, which will increase its equity and appreciation over time.

Can You Get a Home Equity Loan With Bad Credit?

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:

  • A minimum credit score of 620
  • 50% to 20% equity in your home
  • A DTI or debt-to-income ratio of no more than 43% or 50% depending on the lender
  • A history of on-time bill payments
  • A stable income and employment history

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.

How To Secure a Home Equity Loan With Poor Credit

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:

  • Do plenty of research into lenders in your area. That way, you can find the best option based on your credit score and other credit attributes without accidentally signing up for a predatory loan.
  • Try to improve your credit profile before you apply. For instance, ask for a free credit report and check for inconsistencies or errors. You can report errors to the credit bureaus, which may improve your credit score. You can also try to pay down any other debts or small credit bills under your name, as this will also improve your credit score.
  • Don’t borrow more than you can afford. If you have to sign up for a home equity loan without good credit, don’t borrow so much money that you get drowned by high-interest payments in the long run.

Is a Traditional Home Equity Loan the Only Option?

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.

Contact Balance Today

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.


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

Collateral Definition, Types, & Examples | Investopedia