In case you own a property then a home equity loans Chicago can be a potential source of cash to cover renovations, college tuition, or any other expenses. Though many lenders have stringent credit score lending standards regarding these loans, not all of them have the same criteria. In case you have a bad credit score, you should consider shopping around for different rates and terms from various lenders.
Qualifying for a Home Equity Loan
Here are some good news first – The basic requirement for a home equity loan is to have home equity. If you made a down payment, your home has appreciated in value, or you have paid off part of your loan, which means you have equity and you’re already one step closer to the home equity loan.
In case your credit is poor, you might need some more equity to qualify than somebody that has stellar credit. The value of the property should be high in comparison to the requested loan.
Here are some of the alternatives to help you improve your chances of qualifying with a low score.
- Have high and consistent income
- Be current on your mortgage loan for at least one year
- Own bonds, stocks, and other valuable assets
On the other hand, you should keep in mind that any foreclosure or bankruptcy on your record will be seen as the major red flag.
According to the research conducted in September 2019, borrowers with credit scores from 670 to 699 paid an average of 9.2% for a home equity loan of $50,000, vs just 6.2% of them with scores above 740.
While the amount you’re allowed to borrow depends on many factors (including your credit history) generally you won’t be able to borrow over 85% of your home’s value.
What are the advantages of a home equity loan with bad credit?
Even though a home equity loan comes with many pros and cons, especially if you don’t have stellar credit, the positive side is that rates on home equity loans are usually cheaper than credit cards, private loans, even with a lower credit score. But that’s not the only advantage, because with you will have:
- Consistent monthly payments
- Easy to predict and budget for
- Interest may be tax-deductible
- Chance to consolidate debt, and
- It’s much affordable than credit cards and private loans
The Bottom Line
Though it can be tricky to get a home equity loan with bad credit, it’s not impossible by any means. As with any other primary residential mortgage loan, it would be best to shop around and get several quotes before making a final decision about which lender to use on your home equity loan. Compare the interest rate, terms, APS as well as closing costs and individual fees. Also, you can consider using a mortgage broker to help you out with the process or work on improving your credit score before applying. What’s more, waiting until you have a decent amount of equity in your home may help.