Bad Credit Series: Home Equity Loans with Bad Credit

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When the going gets tough, sometimes, the tough get a home equity loan. There are always going to be times in life when you could use an injection of cash, whether that’s because you’re trying to breathe life into a start-up, you need to take care of repairs to your home, or you want to catch up on some bills. If your credit is less than perfect, that doesn’t mean you can’t get this type of financing. Banks that give home equity loans for bad credit may be able to help.

Home Equity Loans and Credit Requirements

When a lender is deciding whether to approve someone for a mortgage, it looks at a number of factors. Credit is one of them, but it’s not the only one. This is good news for you if you have bad credit. While your credit rating absolutely is a factor, some banks place less emphasis on it than others.

You may find better success with an FHA-backed home equity loan or even one that’s considered nonprime. As long as you can afford to make the payments and understand the terms you’re agreeing to, there’s no reason to be afraid of an alternative mortgage.

Compensating Factors for Home Equity Loans

Just like with a purchase loan, lenders will consider compensating factors for home equity loans, depending on the program’s underwriting guidelines. Compensating factors are those financial or historical items that show that your credit score may not tell the whole story. The best compensating factors for a home equity loan include:

  • Home equity. The equity in your home is number one, above anything else. This is the difference between the value of your home, based on the current market, and the amount of your mortgage. If you have paid down a good chunk of your mortgage or the value of your home has increased since you bought it, there may be enough equity to use as collateral for a loan.

  • Debt-to-income ratio. Is your level of debt relatively low in comparison to your income? The lower your debt-to-income ratio, the less risky you are to a lender.

  • Steady income. Although this is a much smaller factor, it sets a lender’s mind at ease to know that you have a steady source of income and a consistent employment history.

How to Find Banks that Give Home Equity Loans for Bad Credit

Since each bank sets its own rules for its lending programs, it really pays to shop around if you are looking for a home equity loan and you have bad credit. Get rate quotes from more than one local banker to find out what the rates and terms would be for your situation. You may be pleasantly surprised at how flexible lenders can be.

Best Banks for Bad Credit Mortgages in 2018

The following lenders will work with customers who have had past credit issues. They are examples of the leading banks prepared to issue mortgages to borrowers with bad credit.

Carrington Mortgage

Carrington Mortgage Services was established in 2007. This privately owned lender offers flexible options for refinancing a home and will work with customers who have credit scores of 500 and up.

Whether you are self-employed, are on active duty in the military, live in a rural area, or want to cash out the equity you’ve built in your home, Carrington Mortgage may be able to help you. This lender also offers conventional home equity mortgages and cash-outs.

Third Federal Bank

Third Federal Bank offers a guarantee that it can offer the lowest rates on home equity loans or the bank will pay you $1,000! That sounds like a good reason to get a quote. This lender offers fixed and adjustable rates on its home equity loans.

Visit the Third Federal website to find the right lending solution for you. You can apply for the financing you need online, too.

CrossCountry Mortgage

CrossCountry Mortgage originated in Cleveland, Ohio, in 2003. This full-service lender runs its business based on providing customers with “the best possible advice and benefit to their financial needs while facilitating a straightforward, stress-free mortgage process for the buyers, sellers and realtors.” [sic]

Check out CrossCountry for home equity loans with fixed interest rates and a variety of amortization periods to fit your budget. This lender uses the equity in your home as the collateral for the loan, which means any credit issues from your past aren’t the major consideration for approval.

Discover Bank

It started with a credit card in 1985. That’s when the first test purchase with a Discover card was made by a Sears employee at one of the company’s stores in Atlanta. The company continued to grow and develop, and in the year 2000, it acquired Greenwood Trust Company, which changed its name to Discover Bank. Customers have been able to arrange loans through Discover Bank since 2012, home equity loans were introduced the following year.

The advantages of dealing with Discover Bank include no application fees and no origination fees. If your home equity loan is approved, you won’t owe any additional money at closing. A personal service banker will be assigned to you, so that you have a designated person who is familiar with your loan application and can answer your questions.

Discover Bank arranges home equity loans of between $35,000 and $150,000. Loan terms of 10, 12, 15, 20, and 30 years are available. You can work with the bank to structure a payment plan that will fit your budget.

Rates for a loan in a second lien position (a second mortgage/home equity loan) range from 4.99%-11.99% (November 2018), based on a customer’s creditworthiness when they apply for the loan. The bank considers the value of the property and the applicant’s income, among other factors, when determining creditworthiness on a case-by-case basis.

Bad credit won’t necessarily derail your plans for a home equity loan. Check out the banks listed above or shop your favorite credit union before you resign yourself to living with that scary bathroom for many more years.