Bad Credit Home Equity Loan

What is a Home Equity Loan?

A home equity loan is a flowing line of credit that is secured by the equity in your home. When you purchase a home, you are regarded as the owner. But, the truth is that you aren’t completely the owner of the house until you fully pay off your mortgage. 

Home equity can be defined as the difference between your home value and how much money you owe on your mortgage. That is, it is the percentage of your home that you actually own.

Home equity loans are approved based on the amount of equity accumulated in borrowers’ homes. 

These loans have minimum requirements for homeowners that want to gain some cash from their properties. Because of the nature of home equity loans (the fact that they are equity-based mortgage loans), the credit ratings and incomes of borrowers are rarely taken into consideration when they wish to apply.

What Can Home Equity Loans Be Used For?

Homeowners can use home equity loans for several reasons. Some of which are:

• Home renovations
• Providing bank accounts with liquidity.
• Consolidating debts with high rates of interest.
• Pay property tax arrears outstanding debts
• Rebuild your credit score (this is for borrowers with bad credit ratings.)

How to Calculate Your Home Equity

You can do the approximate calculations of your home equity on your own. You do this by calculating the difference between the market value of your home and the balance of your mortgage. To get a general idea of what your home equity is worth, you can subtract your remaining mortgage balance from the price you purchased your home for.

You could use an online home equity calculator to see how much equity you have and to know how much can be borrowed using the equity in your home.

To know the exact amount of equity you have built up, you would need a professional appraiser. 

How Do Home Equity Loans Work?

Before a borrower can get approval for a home equity loan, certain things must be verified by home equity lenders. Lenders will confirm the value and marketability of your property, the property’s condition, and the amount of your mortgage balance. To confirm your mortgage balance, you can consult your most recent mortgage statement. 

Most times, home equity lenders can give up to 90% loan to value.

Can I Get a Home Equity Loan with Bad Credit?

Yes, you can get a home equity loan with bad credit. It is even safe to say that it’s easier to get approved for home equity loans than traditional bank loans if you have bad credit.

Home equity loans with bad credit can be approved by direct home equity lenders who don’t have any minimum credit score requirement. The main requirement that these lenders need is that a professional appraisal company should appraise the property so that the value of the property can be determined and the exact condition of the home can be known.

If you have bad credit ratings, here are some things you can do before you apply for a home equity loan:

Be Sure You Have Enough Equity 

The more equity you have in your home, the better rates you will come across.

Most times, lenders require that you have at LEAST 15% to 20% equity in your home. 

Consider Your Financial Needs

Before you apply for home equity, you have to consider just how much you need. Many lenders can give you up to 85% of the value of your home. Some lenders can go higher, and you can take out more than you need in case something else comes up.

See how much money you can afford first before you decide on the amount you want to borrow.

Compare Your Rates of Interest

Check out all the factors that your interest rates depend on and put them in order. The main thing that your rate of interest is dependent on is your credit ratings. The lower your credit score, the higher your rate of interest will be.

Consider a Co-Signer

If your credit ratings are so bad making you unable to qualify for a home equity loan, and you really need it, you can consider enlisting the help of a co-signer.

A co-signer is someone that will apply for your home equity loan with you. Lenders see them as borrowers too. 

Co-signers are as responsible for paying back loans as actual borrowers, at least on paper. If borrowers fall behind on refunding home equity loans, co-signers credit ratings will suffer the consequences. If you want to select a co-signer, you should choose someone that you trust who understands your financial situation; someone that has a good credit rating.

Eligibility Requirements for Bad Credit Home Equity Loans

The requirements necessary for borrowers to get applied for bad credit home equity loans are dependent on the lender you use. But, the general requirements that all lenders need are:

• You must be at least the age of majority in your province.
• You must be a Canadian citizen or a permanent resident.
• You need to carry out a professional home appraisal.
• You need proof of ownership of your home.
• You need the necessary documentation of your mortgage details.

Conclusion

Although getting home equity loans with bad credit ratings can be a bit tasking, it can be done. But, it is advisable to work on improving your credit score. Before you decide on a lender to use, do your research on each lender and compare their interest rates to select the lender that can offer you the best rates.