If you’re a homeowner, home equity loans are a way to borrow against the value of your home and get cash for large expenses. If you have bad credit, it’s possible to still get a home equity loan, but it will likely cost more in terms of interest and fees.
Tips to get Home Equity Loan with Bad Credit in PA
There are other options to consider if you have bad credit and need to borrow money. Here’s how to get a home equity loan with bad credit in PA:
(i) Check your credit
The first step is to check your credit score and review your credit report. There are several free sources. Check for errors on your report and take action to fix them, if necessary. If there are any current accounts that have been negatively reported, consider making on-time payments over several months before applying for a loan.
(ii) Know How Bad Your Credit Is
Check your credit scores and reports from each of the three major credit bureaus thoroughly. It is important to know what is on your reports and what your credit score is before you start shopping for a home equity loan. This way, you’ll know what lenders are likely to approve your application so that you can avoid wasting time and energy on lenders who won’t give you a loan.
(iii) Shop around
Once you know your credit score, you can shop around and compare offers from different lenders. You’ll want to look at the annual percentage rate (APR) on each offer, which takes into account not only the interest rate but also any other charges that might apply, like origination fees or closing costs.
(iv) Find Lenders that Offer Bad Credit Home Equity Loans
Look for lenders that offer bad credit home equity loans. Some lenders specialize in bad credit loans while other lenders set aside a portion of their funds for customers with less-than-perfect credit scores and histories. If they do not advertise this service, don’t be afraid to ask them if they offer it.
(v) Fix Your Credit Score:
It may take some time to fix your credit score enough to qualify for a good interest rate on a loan but the effort will be worth it in the end. The best way to improve your score is by paying down any outstanding debt that you have and making all of your payments on time. Paying off debt will also help raise your credit score by reducing your credit utilization ratio which is how much credit you are using compared to how much credit is available from lenders.
What is a HELOC?
A HELOC is similar to a home equity loan (HEL), except instead of receiving the total loan amount upfront as you do with a HEL, the lender gives you access to funds as you need them. You can use these funds for any purpose — debt consolidation, home improvement projects, purchases, or anything else. And as long as the value of your house increases more than the interest rate charged on your HELOC, its value should also increase.
The problem with HELOCs is that their rates are variable and based on market fluctuations. If market interest rates go up, so does yours. That could make it difficult to budget or repay the loan.
Risks of HELOCs with bad credit
The biggest risk of taking out a home equity loan or HELOC with bad credit is that you could lose your home if you fail to make payments. The value of your home is used as collateral for the line of credit, so if you don’t pay back what you borrow, the lender could foreclose.
Of course, you can also lose your home from not paying other bills or from financial decisions unrelated to your HELOC. The point is that having bad credit can be an indicator that you’re financially irresponsible and more prone to risky behavior. Whether it’s owning a home, driving a car, or doing something as simple as getting a cell phone plan, lenders have to look at these risks when deciding whether to approve you for financing.
It’s not just the threat of losing your house when taking out a HELOC with bad credit — it’s also the cost. Because you’re considered a greater risk than someone with good credit, lenders may charge higher fees or interest rates on HELOCs and home equity loans.
While this is the reality of lending in general, there are ways to mitigate these risks. For example, some lenders will only approve borrowers who have good credit and sufficient income to comfortably afford their monthly payments. This way they know they’ll get paid