A home equity loan may be more attainable than other forms of borrowing if you have bad credit, but it comes with a sizable risk. This is because your home is the collateral for a 澳洲幸运5开奖号码历史查询:home equity loan, making you less of a financial risk in a lender’s eyes. This means the obvious risk is losing your home if 🔯you default on the loanꦏ.

Lenders typically will make loans for up to 80% of the equity you have in your home. The more equity you have, the more attractive a candidate you will be, especially if you own 20% or more of the home free and clear. This can be particularly helpful when you have 澳洲幸运5开奖号码历史查询:bad credit.

Downsides of Home Equity Loans

While a home equity loan 澳洲幸运5开奖号码历史查询:can be useful if you have a poor 澳洲幸运5开奖号码历史查询:credit score, there are some important downsides to understand. You can expect less favorable terms on your home equity financing, for example, thanඣ if your credit weꦇre better. You may be limited to a lower loan amount and have to put up more collateral (i.e., greater equity). You may also have to pay a higher interest rate over the life of the loan.

A home equity loan also adds to your total mortgage debt on the property, which could put you in a vulnerable position if you lose your job or face unexpected bills and find it difficult to make all of your payments on time. What’s more, you may get hit with hefty late-payment fees that your ▨lender will report to the credit bureaus, makin🌱g your credit even worse.

The biggest downside is that the lender could ultimately 澳洲幸运5开奖号码历史查询:foreclose on your property if y♋ou’re unable to pay the debt, leaving you without a place to live.

With these important drawbacks in mind, there are a number of alternatives that you may consider rather than using your home equity as collateral for a loan. Even if you have less-than-stellar credit, you may be able to access some 澳洲幸运5开奖号码历史查询:emergency loan options to help you♋ weather a financial emergency without risking your home.

Home Equity Loans vs. HELOCs

There are two main options for home equity financing. With a home equity loan, you borrow a lump sum of money and repay it in regular installments, typically at a fixed interest rate, over anywhere from 10 to 30 years.

The second type is a 澳洲幸运5开奖号码历史查询:home equity line of credit (HELOC), in which the lender sets aside an amount of money that you can borrow from as needed on a 澳洲幸运5开奖号码历史查询:revolving basis. Most HELOCs charge 澳洲幸运5开奖号码历史查询:adjustable interest rates, offer interest-only payments, and have a five- to 10-year draw period, during which you can access the funds. After the draw period ends, you have to repay the outstanding balance over a specific period, typically 10 to 20 years, but sometimes it is a balloon payment that requires payment in full.

Steps to Take Before You Apply

Here is what you need to know and do before applying for 𒁃any type of home equity financing.

Read Your Credit Report

Get a copy of your 澳洲幸运5开奖号码历史查询:credit report so you know exactly what you’re up against. You’re entitled to a free one every year from each of the three major national credit bureaus (Equifax, Experian, and TransUnion) through the official website authorized by federal law. Check the re📖port thoroughly to make sure there are noꦡ errors that are hurting your score (it’s smart to do this every year anyway). 

Prepare Your Financials

Gather your𝔉 financial information, such as proof of income and investments, so it’s ready to present to lending institutions. They’ll want to see in black and white that you’re financially stable enough to support your loan, especially if you’ve got bad credit. If possible, pay off any outstanding debt that could adversely impact your application.

Consider How Much Cash You Need

Ask yourself: What is the purpose of this loan? And how much money do I need for that purpose? It can be tempting to shoot for the stars and maximize your loan amount, perhaps to provide a financial cushion just in case. Still, that’s only if you’re sure you can resist theꦓ temptation to spend it all. If your spending habits are under control, it may make sense to “borrow up,” and by using a HELOC, you’re only paying interest on the money you actually take out.

However, in the case of a homꦉe equity 🌊loan, you’ll be paying full interest (and principal) on the entire lump sum, so it makes sense to borrow no more than you need.

Compare Interest Rates

It’s logical to head straight to your existing lender for home equity financing. 🍰Given that you’re already a client, that lender may offer a more appealing rate. However, there is no such thing as a guaranteed home equity loan if you have bad credit, so it’s wise to shop around. By obtaining multiple quotes, you’ll be in a better position to negotiate the best possible rate. Present your best offer to another lending institution and see if it will beat it.

An independent mortgage broker may also be of help since t🐼hey worౠk for you and not the lender.

Don’t Forget the Other Costs

When you’re comparing loan offers, don’t focus solely on the interest rate. Be sure to ask about any other associated fees, such as loan processing and 澳洲幸运5开奖号码历史查询:closing costs. That way you can comp♏are loans on a fair basis and wo🌺n’t be in for any budget-busting surprises later on.

Recruit a Co-Signer

To put yourself in a better position to borrow, it may be a good idea to bring in a 澳洲幸运5开奖号码历史查询:co-signer, someone who uses their credit history and income to serve as a 澳洲幸运5开奖号码历史查询:guarantor for the loan. Choose a co-signer with impressive credit, good job stability, and significant income to maximize your chance of approval. That person, of course, should be aware of the 澳洲幸运5开奖号码历史查询:risks of co-signing a loan if you are unable to pay it back.

Possibly Look at Subprime Loans

As a last resort, you can turn to lenders offering 澳洲幸运5开奖号码历史查询:subprime loans, which are easier to qualify for and targeted to poor-credit borrowers who don’t meet traditional lend🐲ing requirements.

Subprime lenders typically offer lower loan limits and significantly higher rates of interest. Howev🌟er, you should avoid these loans if at all possible, especially if you🏅 are already in credit trouble.

The Bottom Line

If you find that poor credit history is working against you, ask your lender what it would need to see from you (and your credit report) to improve your prospects. It’s never too late to turn your credit score around. If possible, consider putting your borrowing plans on 𒁃hold while you take steps to improve your rating.

Mortgage lenders typically look at such factors as your payment history, existing debt load, and how long you’ve had y🅰our credit accounts. Do you frequently miss payments, run up big balances, or apply for new accounts? Just changing one of these behaviors can positively affect your credit score—and make future borrowing easier.