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A home equity loan is money you take out against the value of your home to use as you wish. Most people borrow against their home for renovations or to put their children through college, but the loan can really be used for anything you want.
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Typically, home equity loans are difficult to get if you have bad credit. This could mean a score of anywhere from 620 and 580 or below.
Depending on how bad your credit is, it can be difficult to find a lender who will give you a loan. That said, there are certain things you can do to boost your chances of getting approved.
Choose a Lender that Will Work With You
There are certain lenders who work with borrowers who have bad credit scores. This will be the first stop if you are worried about getting approved. Smaller, local banks and credit unions are a good place to shop around for interest rates and quotes if you are concerned about bad credit. Smaller banks often have more flexibility when it comes to underwriting, and might not be as stringent as larger banks.
Online lenders, which don’t have to worry about the expenses of brick and mortar banks, also have a little more leeway when it comes to giving out loans. These can include lenders like Rocket Mortgage and Lending Tree, who can transfer their savings on expenses down to their customers in the form of riskier loans.
Reduce Your Debt to Income Ratio
You can also make yourself the most desirable candidate possible. Your debt to income ratio is an important determining factor banks look at when approving loans. This figure is a measurement of how much of your monthly income is utilized to pay your debts each month. For example, if you make $10,000 per month and have $4,500 of debt payments each month, your DTI is 45%. Lenders prefer to see a DTI of 45% or less, though some may accept up to 50% in some cases, according to Forbes. If you have bad credit, you’ll benefit from having as low of a DTI as possible to qualify for a home equity loan.
Discover: 5 Best and Worst Ways to Leverage Your Home Equity
Check How Much Equity You Have
It’s also important to make sure you have enough home equity to take out a loan in the first place. The first step in doing this is getting the home appraised, which typically costs around a couple of …….