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Rejected for a home equity loan because of bad credit in Lakeview? Here is the solution

Lenders will check your borrowing history and credit score to determine if you are eligible for a home equity loan. To have the loan approved, you should have a stable borrowing and repaying history of loans. However, most people experience challenges and end up defaulting on loans. If you are one of them, lenders are likely to decline your home equity loan application. The number of lenders offering home equity loan for bad credit in Lakeview is increasing, and so are subprime loan programs for people with very poor credit scores.


Home equity loan accounts have resurged due to the rising value of properties in Lakeview. Individuals who meet the requirements for private lending might be eligible for the loans, and bad credit ratings may not be a reason for you to skip applying, but you can also opt for a home equity loan alternative in Lakeview. Alternatives are usually much easier and more effective.


Getting Bad Credit Home Equity Loan in Lakeview


Some preferred lenders have extended unique credit cash-out refinancing programs and equity loans for individuals with low credit scores and past bankruptcies. You have to secure a home equity loan with your home serving as the collateral.


That provides the lender with some security if you fail to service the loan. To get the equity value, the lender finds the difference between your property value and the amount you owe them.


Qualifying for the Home Equity Loan If Your Credit Score is Very Low


Lenders have different home equity loan standards. For that reason, you have to search around for the best terms and rates. Banks are likely to approve your loan if;


  • If you have around 15-20 percent equity on your property
  • Your credit score is above 620, based on a scale of 300 to 850
  • Your debt-to-income ratio is 43 percent
  • You pay your monthly bills on time
  • A stable income or employment history


Check Your Debt-To-Income Ratio


The debt-to-income ratio divides the monthly debt by the monthly gross income. To calculate it, take your total debts and divide them by total income. If your current monthly debt is $2,000 and the monthly net income is $5,000, your DTI ratio will be;


$2,000 / $5,000 = 40 percent DTI


A high DTI will be a turnoff to lenders because it means that you have less money to direct to other monthly expenses. You can afford to make all the payments on time, but there is a higher chance of experiencing financial hardship. Keep the DTI as low as possible – below 43 percent.


Calculating Your Home Equity Loan


After qualifying for the home equity loan, you will have to repay it for a period between 5 and 15 years at a fixed interest rate. The minimum loan amount ranges between $10,000 and $25,000, but the lender might reduce or increase it depending on your needs.


Lenders will base the maximum amount to lend on your loan-to-value-ratio, known as the LTV. Here is a quick example;


The lender determines that your home has a value of $400,000, and you still owe them $250,000. The LTV will be 62.5 percent. If the lenders allow LTVs below 85 percent, you might get a loan below $90,000. Here is the calculation;


$400,000 X 0.85 = $340,000 – $250,000 = $90,000


The calculation of home equity loans is different from that of the home equity line of credit loans. The two types of loans are based on your home’s equity, and the house will be the collateral. If you fail to service the loan, the lender can foreclose.


Effects of a Low Credit Score on Home Equity Loans


A low credit score will adversely affect your chances of qualifying for any type of loan. After your bad credit equity loan is approved, you will face high monthly payments and interest rates.


For example, if your credit score is between 620 and 639, you will end up paying an average interest rate of 11.92 percent for your $50,000 fixed home equity loan. The period can be up to 15 years. That is roughly double the amount borrowers with top-tier credit rating would end up paying. As the person with a very poor credit score, you would end up paying $200 more than those with a good credit score would end up paying.


Alternative to Home Refinancing in Chicago


If you have a very bad credit score, qualifying for a home equity loan bad credit in Lakeview might be impossible. For that reason, you might need to consider Skydan Equity Partners program. Alternatively, you can start by boosting your credit score. You might also benefit from tax lien relief in Chicago.