Question:

Is it possible to take a home equity line of credit for bad credit borrowers?

Answer:

Bad credit borrowers may think they wouldn't qualify for a HELOC. However, that is not true. Home equity line of credit for bad credit borrowers is just as available as to people with perfect credit. There are some differences, though.

To understand how a home equity line of credit will work for you if you are a bad credit client, you have to understand the basics of how a HELOC works.

Understanding Equity

Equity is what you own in your house - the difference between market value and your outstanding first mortgage balance. See this - if you have a house worth $100,000 and you owe $75,000 on it, you have built up equity of $25,000. If you have good credit, your lender may give you a home equity line of credit well over $25,000, say $40,000. If your credit is bad, your home equity line of credit should not exceed 90% of your equity, and even be less. However, some lenders may still extend a HELOC well over your equity and well over your ability to repay it. You would like to avoid getting into too much HELOC debt as defaulting on your payment will rid you of your house and still leave you in debt.

Have in mind, if you have bad credit and consider taking a home equity line of credit, your rates will be higher and often it will be difficult for you to negotiate a fixed rate HELOC.

So, the answer is - yes, a HELOC is possible for a bad credit borrower, but perhaps not the best loan choice. You may like to avoid a home equity line of credit and get additional unsecured credit card instead. A recently advertised credit card product may get you very low interest for limited time and you could take advantage of it. Or, if you need more money to spend on a big ticket item, such as tuition or a car, you may like to research what specifically tailored loans are offered around instead.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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