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Can I Get a Home Equity Loan With a Sub-600 Credit Score?

Can I Get a Home Equity Loan With a Sub-600 Credit Score?

Having a shaky financial history, and subsequently a bad credit score, can hinder a lot of major life steps: buying a car, investing in property, opening a new credit card, and acquiring loans. Times can get tough for anyone, but traditional lending institutions need to see historical proof that you’re willing and able to pay your bills on time before they agree to lend money to you. Oftentimes, your credit history will even dictate the quality of the loans for which you qualify, meaning the better your credit, the lower interest rates you can access. This system puts lenders at less risk of losing money, but can be frustrating for people who are in a financial bind because it essentially means that the more you struggle now, the more you’ll owe in the future.

 

Home equity is just one asset in your portfolio that can be very useful as your home accrues value over time and as you pay down your mortgage. Tapping into this equity is a great way to pay for unexpected expenses life throws at you. Traditionally, people access their home’s equity through home equity loans or home equity lines of credit (HELOCs), but there are other, more advantageous alternatives out there.

 

Here we’ll go over what home equity loans are, why people use them, and a better alternative if you cannot get a home equity loan due to bad credit.

 

What is a Home Equity Loan?

A home equity loan is a loan that is secured against your house, meaning that if you default on it, the lender has the right to foreclose on it. The amount you can borrow is dependent on a few factors, including credit history, income, and the market value of your home. Generally, lenders will not give you more than 85% of the equity — the difference between a home’s market value and the balance of all liens — in your home. It often comes in the form of a lump sum of cash and an interest rate tacked on.

 

Reasons People Get a Home Equity Loan

Most people seek out a home equity loan to pay for major expenses or to climb out of debt in some way, including but not limited to:

 

  • Major renovations (to add value to the home)
  • High-interest debt consolidation
  • Medical expenses
  • Income during a job loss
  • Property investment

 

Keep in mind that the above reasons are all valid. There are, however, bad reasons to get a home equity loan. Funding expenses such as vacations, expensive luxury items, etc. is financial mismanagement and you will probably have a hard time paying the loan off in the future. You should also not use a home equity loan to pay for basic expenses such as clothing, food, and utility bills unless it’s due to a temporary job loss. If you are fully employed and are unable to pay for basic necessities, then it’s time to sit down and take a hard look at your finances to see where you can make some changes; taking out a home equity loan will only further add to your debts. You also run the risk of losing your home in the long term in exchange for short-term financial relief.

 

Will I Qualify For a Home Equity Loan With Poor Credit?

Different lenders have different requirements for approving home equity loans. Generally speaking, some universal requirements are:

 

  • At least 15% equity in your home
  • Debt-to-income ratio of up to 43% (varies)
  • Stable employment
  • Credit score of at least 620 (varies)
  • History of timely bill payment

Many of these factors vary from lender-to-lender. For example, if your credit score is below 620, you may still get approved if you have stable employment, lower debt-to-income, or more than your average home equity. It’s all a balancing act, so if one aspect of your finances is weak, the others must be stronger in order to make up for it. Additionally, if you are trying to acquire a 2nd mortgage, a credit score of 620 will more than likely disqualify you.

 

Will My Poor Credit Score Impact the Interest Rate I Get with a Home Equity Loan?

 

The short answer is yes, a poor credit score will impact the home equity loan interest rates to which you will have access. Most lenders want to see a credit score of at least 620-680 for a first-time mortgage applicant, but anything above 700 will qualify you for the best interest rates. Credit scores below 700 tend to have higher interest rates, unless the rest of your finances, such as debt-to-income ratio, are in tip-top shape.

 

SKYDAN Equity Partners: Risk-Free Alternative to Home Equity Loans

At SKYDAN Equity Partners we don’t ask for your credit history, employment status, or other criteria from traditional home equity lenders. Our innovative home buy-back program allows you to tap into your home’s equity without worrying about monthly payments, interest rates, or credit checks. Here’s how it works:

 

 

  1. SKYDAN buys your home, but you don’t move out.
  2. You then agree to lease the home back from us at a mutually-agreed upon amount, not exceeding 2 years.
  3. Rent is deferred until the end of the agreement, meaning no monthly payment is due.
  4. You may then purchase the home back (original price + deferred rent) OR sell the property, at current market value, receiving all additional equity.

The only thing you need in order to qualify is having enough equity in your home. This system offers much-needed relief from the baggage that comes with traditional home equity loans. We’re here to help you make the most of your home’s equity to pay for life’s expenses or pay down those crushing debts.

 

Learn more about our program or see if you qualify!