Buying a home can be a complicated and expensive process. There are a lot of factors to consider before deciding to make a purchase. For example, you’ll want to know your credit score, what kinds of interest rates you qualify for, and the type of loan you need. One option you may want to consider is guaranteed home equity loans for bad credit.
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. 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.1
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.
Minimum Credit Score for Home Equity Loans
A home equity loan is a secured loan where borrowers get money based on the value of their home and how much equity they currently have. Lenders will usually offer you around 85% of your equity in the home. So if you’ve already put $100,000 into the home, you may be able to get a home equity loan for $85,000.2
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.
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.3
Subprime Home Equity Loans
It is possible to get a home equity loan or line of credit with a subprime credit score. Although, you may not qualify for a good interest rate. Luckily, credit scores are not the only thing that lenders consider when reviewing your application. Lenders may also review:
- Your debt-to-income ratio
- The amount of equity you have in the home
- Your payment history
- Your income
If you’re struggling in any of these areas, especially your credit score, there may still be options to help you.
FHA Home Equity 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.4
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.