Do you have poor credit? If so, you probably think that getting a home is impossible. While the majority of banks and financial institutions may not give you a loan, it is feasible to get a home equity loan with imperfect credit. Lenders approve loan applications that are secured. Thus, upon your failure to pay the loan, they may claim your property.
Using Your Home’s Equity as Collateral
Home equity loans are collateral loans. Using your home’s equity, you can borrow a lump sum of money up to a specific amount. Hence, you obtain a second mortgage. Instead of making one mortgage payment a month, you are required to make two. Home equity loans are generally smaller amounts, and carry a lower interest rate.
Getting a Home Equity Loan with Poor Credit
If you have poor credit, getting a home equity loan may improve your situation. Many people assume that poor credit is caused by irresponsibility. However, this is not always true. Losing your job or becoming ill can be damaging to your credit. Not receiving a regular paycheck may result in an inability to repay creditors. Most people live paycheck-to-paycheck. During a life changing event, you can go from good credit to bad credit within a few months.
Getting a home equity loan with poor credit is simple. Various lenders are prepared to give loans to individuals with a low credit rating. If your credit score is at least 640, you may qualify for prime rates. If your score is lower, you will qualify for a sub prime loan. The interest rate you receive with a sub prime loan may be higher. This depends on your credit score. For instance, if you credit score is 620, you may receive rates comparable to prime loans. If you score is below 600, be expecting rates a few points higher.
Once your application for a home equity loan has been approved, use the funds to pay off credit card balances, personal loans, and other consumer debts. Paying off debt will lower your debt to income ratio, which will improve your credit. Of course, home equity loans must be repaid. Thus, avoid borrowing more money than necessary.
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Carrie Reeder is the owner of ABC Loan Guide , an informational website about various types of loans.