Explore the Mortgage101 Library
Check Local Mortgage Rates
Loan Program Choices
Use our calculator to find out your estimated monthly payment in advance: Enter the loan amount, interest rate, and length of mortgage.
Try our Mortgage Payment Calculator
It is possible, although difficult, to obtain home equity loans for people with bad credit. The tightening of credit requirements in the wake of the banking and credit crisis have made banks less willing to extend credit terms to borrowers with bad credit. A homeowner who has a bad credit rating will need to do a lot of work to convince a lender that he/she is creditworthy and responsible enough to obtain that loan.
Obtaining a Home Equity Loan with Bad Credit
HELOCs (home equity lines of credit) are not currently available to people with bad credit. When the financial and credit markets stopped lending in mid-to-late 2008, banks reviewed their lending practices and made changes. FICO scores were the biggest factors that were restructured, especially with lines of credit. Lines of credit are high risk loans because they are in second position, and are often not paid back in a foreclosure. As a result, banks increased FICO requirements for the product and lowered available loan amounts. Many banks stopped offering the product altogether.
The financial crisis that led to the freezing of the credit markets has shared blame between borrowers, lenders and Wall Street bankers that securitized the collateral. As we move beyond the crisis, a person with bad credit should analyze their credit and deal with the problems head on. A borrower can contact their current lender to see if they qualify for a home equity loan. The lender will be able to tell them in less than 30 minutes after they review their credit report and run income.
Addressing and Improving Credit
Addressing a borrower’s credit situation by contacting the credit bureaus and removing old or bad items is one way for a person to take control of their credit situation. Seeking credit counseling and paying off past due debts is another way in which a person can improve their credit situation and put themselves in a better position to obtain a home equity loan.
- 3 Factors that Can Negatively Affect Your Mortgage Application
- 3 Warning Signs of Loan Modification Scams
- What Lenders Don't Reveal About Home Equity Loans
- FHA Eligibility with Bankruptcy and Foreclosure
- Alternatives to Getting a 2nd Mortgage
- Appraisal Basics
- 3 Reasons Banks Reject Short Sales
- What To Do When Mortgages Default
- Should You Refinance? Make Sure the Timing is Right