You need some extra cash. And, you are keenly aware that your home has equity in it – meaning, you owe less on your mortgage than your home is worth. Good for you!By taking out an equity loan – also called a second mortgage – you could use the cash to pay down outstanding credit card debt, pay off other debt, remodel your house, or basically do whatever you like.Still, what do you do if you have a bad credit score? This can make things a bit tougher. As common knowledge dictates, whether or not you can qualify for a loan usually depends heavily on your credit score. A higher score means an excellent chance of getting approved while qualifying for a lower interest rate. Conversely, a lower score means you pay more in interest – if you even get approved, that is.If you are interested in getting a home equity loan with poor credit, here are 3 do’s and 3 don’ts to consider:3 Do’s:1. Know your credit report backwards and forwards:Lenders who specialize in making equity loans to individuals with poor credit scores have learned ways of determining your credit-worthiness that go beyond just looking at your credit score. Unlike most other types of lenders, poor credit home lenders look at the details of your report. So, to be sure you can answer any detailed questions they may have about your credit history, go through your entire report line by line and make notes on any items that stand out.2. Determine how much you need to borrow:It is best to walk into your lender’s office (or when you apply online) with a precise idea of just how much money you intend to borrow against your home’s equity. Make sure to borrow enough, but do not borrow more than you need.3. Seek out bad credit equity lenders:Of course, you will want to approach only lenders who specialize in making bad credit equity loans. Put together a list of at least 5 such lenders.3 Don’ts:1. Do not forget to calculate how much equity you have:Before you start the application process, remember to calculate your home’s current equity. To do so, you will need to have a firm idea of your home’s current market value. Then, find out just how much you owe on your first (and any second) mortgage. Subtract the amount you owe from the home’s value: that is your equity.Note that some lenders will only allow the amount they lend you – plus the total outstanding first mortgage loan balance – to be equal to or less than 80% of your home’s value. This is called an 80% loan-to-value (LTV) loan. However, note that some will go as high as 100% or even 125% LTV.2. Don’t assume you will pay the same interest as if you had a good credit score:If your neighbor who has a better credit score than you do has told you what their equity loan interest rate is, do not make the mistake of assuming that you will qualify for as good of a rate: it likely won’t be.3. Do not accept the first offer you get:As you start applying for loans and getting accepted, make sure you do not just go with your first loan offer. Instead, be sure to apply to all 5 lenders on your candidate lender list.Consider these 3 do’s and 3 don’ts as you find and qualify for a home equity loan with poor credit.
