Guaranteed home equity loan with bad credit

guaranteed home equity loans for bad credit

Homeowners who need more funds and have bad credit may have access to home equity loans. Home equity loans are a type of installment loan that allow homeowners to borrow from the equity of their home. 

It’s important to remember that your home equity loan will use your home as collateral. This means that if you default on the loan, the lender may be able to foreclose on your home to recoup their money. 

These loan options (also including home equity line of credit options) have been extremely popular in the past few years. HELOC activity grew to the highest level since the first half of 2007 in the first two quarters of 2022.1 Common home equity loan sources can be existing mortgage lenders, banks, credit unions, private lenders, etc. 

Just like the different kinds of personal loans options, there are different kinds of home equity loans. 

Many people turn to options like personal loans when they need emergency funding. Although most people may have access to a personal loan option. A personal loan may not offer enough funding for those who have low credit or poor credit history. One option you may want to consider if you don’t have the best credit is guaranteed home equity loans, made specifically for borrowers seeking bad credit loans

What Is a Guaranteed Loan?

A loan guarantee is when a third party takes responsibility for a loan if the initial borrower is unable to meet the financial obligations including a minimum credit score requirement—called the loan guarantor. By third party, we simply mean any person or organization that is not the borrower or the lender

Sometimes loans are guaranteed through the government, which purchases the debt from the lender. 

Depending on the agreement, the third party may guarantee all or a portion of the debt. If the lender only guarantees a portion of the loan, then the borrower would still be responsible for the remainder. 

Some Things to Keep in Mind With a Guaranteed Loan

When considering a guaranteed loan, which is a loan that is backed by a government agency or a third-party guarantor, there are several important factors to keep in mind.

  • Qualification Requirements — Guaranteed loans often come with specific qualification criteria set by the guarantor or the government agency backing the loan. Make sure you meet all the eligibility requirements before applying to increase your chances of approval.
  • Collateral or Guarantees — Some guaranteed loans may require collateral or a personal guarantee to secure the loan. Collateral can be an asset like your home or car, while a personal guarantee means you are personally responsible for repaying the loan if you default. Understand the terms and risks associated with providing collateral or guarantees.
  • Interest Rates and Fees — It’s essential to compare interest rates and fees among different lenders. Understand the total cost of borrowing and any additional charges you may incur.
  • Loan Amount and Terms — Check the maximum loan amount and repayment terms offered by the guaranteed loan program. Ensure that the loan amount suits your needs and that you can comfortably manage the monthly payments within the specified repayment period.
  • Application Process and Timelines — Be aware of the application process and the time it takes to receive a decision. Some guaranteed loan programs may have specific deadlines or longer processing times, so plan accordingly if you have time-sensitive financial needs.
  • Impact on Credit Score — Applying for a guaranteed loan will likely involve a credit check, and multiple credit inquiries can temporarily lower your credit score. Be cautious about applying for multiple loans simultaneously and consider how it may affect your creditworthiness.
  • Loan Purpose Restrictions — Some guaranteed loans have restrictions on how you can use the funds. For example, student loans are typically meant for educational expenses only, and certain business loans may have restrictions on eligible business activities. Make sure you understand any limitations on how you can use the loan proceeds.
  • Repayment Obligations — Understand your repayment obligations fully. Ensure you know the monthly payment amount, the due dates, and the consequences of late or missed payments. Failing to repay a guaranteed loan can have serious financial consequences, including potential default and damage to your credit score.
  • Cancellation or Prepayment Terms — Check if the loan allows for early repayment without penalties or if there are any provisions for loan cancellation or forgiveness under specific circumstances.
  • Future Financial Outlook — Consider your future financial outlook and whether you’ll be able to sustain the loan payments over the long term. Assess your ability to handle any potential changes in income or expenses.

Home Equity Loan Options With a Bad Credit Score

Some lenders may have a minimum credit score requirement for borrowers. However, It may be possible to get a home equity loan or line of credit with a subprime credit score, with the right lenders. Although with bad credit, you may not qualify for a good interest rate. 

Luckily, credit scores are not the only thing that lenders consider when reviewing your application for approval and the interest rate. Lenders may also review:

Debt-to-income ratioYour debt to income ratio measures your monthly debt payments compared to your gross monthly income. 
Payment historyThe record of an individual’s or business’s past payments related to credit accounts
Amount of equity in the homeEquity is the difference between the market value of your home and the amount you owe on your mortgage. 
IncomeThe amount of money you receive for work within a given period.

Here is more information on these factors:

  • Debt-to-income ratio — Your debt to income ratio is a crucial factor that lenders consider when you apply for a home equity loan. It’s a measure of your monthly debt payments compared to your gross monthly income. A lower debt-to-income ratio indicates that you have a good balance between debt and income, which can be helpful.
  • Payment history — Your payment history, particularly your history of mortgage payments, can significantly impact your eligibility for a home equity loan. Lenders prefer borrowers who have a history of making their payments on time, as it indicates a lower risk of default.
  • Amount of equity in the home — The amount of equity you have in your home directly influences the amount you can borrow with a home equity loan. Equity is the difference between the market value of your home and the amount you owe on your mortgage. The more equity you have, the larger the loan you may be able to secure.
  • Income — Your income is another important factor that lenders consider when you apply for a home equity loan. A steady, reliable income shows lenders that you have the means to repay the loan. It’s important to provide proof of income when applying for a home equity loan.

In order to view most of this information, they will need to pull your credit report which is done through a hard credit check. Your credit report has all your financial information! 

How Your Credit Score Impacts Your Loan Options

Just like with any other loan, the higher your credit score, the better deal you’ll get on your home equity loan or line of credit. While you might qualify for a home equity loan with a credit score as low as 660, your best bet for a good interest rate is a score of 700 or higher. 

If you’re struggling in any of these areas, especially your credit score or what is on your credit report, there may still be options to help you. One example are FHA options.

FHA Loans

While the FHA doesn’t specifically offer home equity loans, there are several options that can accomplish what you may be looking for. One of these options is an FHA cash-out refinance. 

An FHA cash-out refinance allows you to refinance your mortgage, and provides you with some cash at closing. So you’ll be taking out a larger, new loan to cover the cost of the original mortgage. Then you would get cash for the extra portion, above the cost of the home. 

Make sure if you’re considering this option, that you’re able to get a good interest rate. It’s also important to understand that there may be additional costs associated with this form of refinancing.

No matter which option you choose for refinancing, remember to always do thorough research and planning. Spending some time shopping for the best interest rates and terms could help you find the guaranteed home equity loans for bad credit that you need.

Average Terms & Conditions for Home Equity Loans

Here are some averages about these loans that you should be aware of:

Loan Amount 

The average loan amount for a home equity loan with bad credit is usually around a few thousand dollars, however, this amount can vary based quite a bit on the value of the home and the amount of equity the borrower has in the home.

Repayment Periods

The average repayment period for one of these loans is typically five to 10 years. This can vary based on the terms set by the lender and the borrower’s ability to make repayments.

Closing Costs

The average closing costs with bad credit are typically 3.5% of the loan amount. These costs can include fees for loan origination, appraisals, and other associated costs.

Down Payment

The average down payment is typically 10%. This can vary based on the lender’s requirements and the borrower’s financial situation.

Origination Fee 

The average origination fee for a home equity loan for bad credit is typically 1.5%. This fee is charged by the lender to cover the costs of processing the loan.

Late Payment Fee 

The average late payment fee for a home equity loan for bad credit is typically 4-5% of the monthly payment. This fee can be charged when a borrower fails to make a payment by the due date.

Prepayment Penalty

The average prepayment penalty for a home equity loan with bad credit is typically 2% of the loan amount. This fee can be charged if the borrower pays off the loan before the end of the loan term.

What’s the Difference Between a Home Equity Line of Credit, Home Equity Loan, and Reverse Mortgage?

The main difference between a home equity loan and a HELOC or home equity line of credit is in how the money is disbursed and repaid. A home equity loan gives you a lump sum of the loan balance with a fixed interest rate (also called fixed rate loans) and set monthly payments—similar to how a personal loan is repaid. 

A HELOC, on the other hand, gives you a credit limit that you can draw from as needed, with a variable interest rate and monthly payments will vary on use. 
A reverse mortgage is completely different from the options above. Instead of borrowing money from a lender, the lender pays you.

FAQs About Home Equity Loans With a Low Credit Score

Still not sure about all the details about a home equity loan with subprime credit, here are some frequently answered questions about a guaranteed home equity loan with low credit:

Is the Interest Rate for a Home Equity Loan for Bad Credit History Typically Higher Than for Other Types of Loans?

Yes, interest rates for this type of loan are typically higher than for other types of home equity loans. These higher interest rates are due to the higher risk associated with lending to borrowers with bad credit. 

As of July 26th, the range is about 8% but that can be much higher with bad credit.3 Interest rates can vary based on the lender and the specific circumstances of the borrower.

Are the Repayment Terms for a Bad Credit Home Equity Loan Usually Shorter Than for The Same Option?

Yes, the repayment terms for home equity loans with a bad credit score are usually shorter than for other types of home equity loans. This is due to the increased risk associated with lending to individuals with bad credit. Shorter loans will mean higher monthly payments so keep that in mind.

Is a Down Payment Usually Required for One Of These Loans With Poor Credit?

Yes, a down payment is usually required for this type of loan. The amount of the down payment depends on the lender and can vary based on a number of factors, including the borrower’s credit score and the value of the home. Generally, with a low credit score you will need a higher down payment.

What Can I Use One of These Loans for?

Home repairs and improvements — Home repairs are another expense that these loans can be used for. Plumbing repairs, electrical issues, purchasing essential appliances, and finishing essential spaces in a home to make them safe for living. 

This is one of the most popular reasons that many people take out these loans. And in 2021, most borrowers who took out a home equity loan used it to pay for home improvements.2

Debt consolidation — Debt consolidation is the process of combining multiple debt balances into one loan. With this, the goal is to have a lower monthly payment and better interest rates. 

Closing costs for a property purchase — When purchasing a second property, many people may choose to borrow from their current home’s equity in order to put a down payment on the purchase of the second hom. 

Medical debts — Another reason that people may seek out home equity lines of credit or loans is to pay for medical debt or expenses. 

Investments — Some homeowners may choose to invest the proceeds of a home equity loan in other ventures, such as starting a business or making investments. However, this can be a riskier option, as the home is used as collateral.

How can I improve my higher credit score before applying for a home equity loan?

Regularly checking for errors on your credit report, paying bills on time, reducing debts, and not opening new credit accounts frequently can help boost your credit score.

Do credit bureaus differentiate between types of loans when calculating credit scores?

Credit reporting bureaus consider various factors, including the types of credit accounts you have. A mix of credit types, like credit cards and home equity loans, can positively impact your credit report and score, but it’s also crucial to manage all debts responsibly.

If I already have an existing mortgage, can I still apply for a home equity loan with bad credit?

Yes, a home equity loan is often a second loan that you take out in addition to your existing mortgage, using the equity you’ve built in your home as collateral.

How does a lower credit score specifically impact the terms of my home equity loan?

A lower credit score might result in higher interest rates, stricter loan terms, and a lower loan amount. Lenders see poor credit as a higher risk, which can affect the loan’s conditions.

What happens if the market value of my home decreases after taking out home equity loans with bad credit?

If your home’s value decreases after taking out home equity loans with bad credit, you might owe more than your home is worth. It’s crucial to understand this risk and discuss potential scenarios with your lender.

Can I refinance my home equity loan if my credit situation improves in the future?

Yes, if your financial situation or credit score improves, you might be eligible to refinance your home equity loan to secure better terms or a lower interest rate.

CreditNinja’s Thoughts on Home Equity Loan Options

Given the potential risks and higher costs associated with bad credit home equity loans, CrediNinja urges you to carefully evaluate your financial situation and the terms offered by lenders. Additionally, be cautious of predatory lenders who may take advantage of individuals with bad credit. 

As with any financial decision, consider expert advice or do some quality online research to make an informed choice that aligns with your financial goals. To learn more about home equity loan options, what a mezzanine loan is, and borrowing with bad credit check out CreditNinja’s blog! 


  1. Home equity line of credit surged by 30% in 2022 from 2021 | USA Today
  2. How Are People Spending Their Home-Equity Loans? | The New York Times
  3. What are today’s home equity loan and HELOC interest rates? | CBS News
  4. Premiums/Late Fees/Interest Charges | 
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