Getting A Bad Credit Home Equity Loan

April 21, 2009 by  
Filed under Home Finance

If you have bad credit, you may think that you cannot get a home equity loan or borrow money for a home. This is not true. There are a number of lenders out there who are willing to make equity loans to those who have bad credit. The interest rate that you have to pay will be higher, but you can still get the money.

In order to get an equity loan for your home, you need to have equity in your home already. Equity is the amount of money that your home is worth less the amount that you already owe on your home. For example, if you have a home that is worth $200,000 and you owe $100,000 on the home, you have $100,000 in equity in your home. Most home equity lenders today will only loan you 80 percent of the amount of equity that you have in your home. In this scenario, you would be eligible for a home equity loan of $80,000.

Unlike a mortgage loan that can have a term of up to 30 years, a home equity loan usually has a much shorter term. You will most likely find a home equity loan that has a term of 5 years. In some cases, you can pay only the interest for the home equity loan during the term of the loan and then pay off the principal, which is the amount that you borrowed, back at the end of the term. Other home equity loans combine both the principal and the interest so that at the end of the term of the loan, the home equity loan is paid off.

You can get a home equity loan from a bank or even an online lender. As is the case with a mortgage, the lender will want proof of income, tax returns, bank statements and an appraisal of the home. The appraisal will let the lender know how much the home is worth. You will have to pay for the appraisal before the loan is made.

Once you get the home equity loan, you can use the money for whatever you want. You can elect to take the home equity loan in one lump sum and begin paying interest on it right away, or you can take it as a line of credit where you only pay interest on what you draw out. Either way, you can use the money that you gain from your home equity loan to make improvements to your house or pay off bills. The interest that you pay on a home equity loan is deductible on your income taxes.

If you have bad credit, you can still get home equity loans. Your interest rate will be a bit higher and you may have to pay higher fees. But you can still borrow some money against the equity of your home, even if your credit is less than perfect. You can apply for a bad credit home equity loan online, with your bank or with a mortgage lender.