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Breathe deeply. This may sound like strange advice for a money article, but really? If you're reading this and your stomach is in knots because your credit score isn't where you want it to be, I need you to know something first: you're not starting from scratch. You own a house. That's a big deal.
A few weeks ago, I was talking to a coworker in our underwriting group, and she said something that stuck with me. She said that the number of people with credit scores between 620 and 680 who are applying for home equity loans has been going up steadily over the past year. Not really a surprise. Since the pandemic, home prices have gone up so much that a lot of people who own their homes now have a lot of equity but not enough credit.
And I get it. You may have had a hard time. You had to pay for medical bills, you lost your job, and your divorce messed up your money for a while. You've been making your mortgage payments on time every month, and the value of your home has gone up. You need to use that equity to pay for your child's college tuition, a kitchen remodel, or to pay off high-interest credit card debt. Your credit score is 640. Or 660. And you're not sure if that's enough.
Yes, it can be. This guide is for you to plan ahead so you can get there.
Bankrate's most recent survey of national lenders found that the average interest rate on a home equity loan is 7.92% for a five-year term and 8.09% for a fifteen-year term. Those rates are for people whose credit score is 700 and whose loan-to-value ratio is 80%. If your score is lower, your rate goes up. Even if your credit isn't great, a home equity loan is still one of the cheapest ways to borrow money. The average interest rate on a personal loan is about 12%, while the average interest rate on a credit card is about 21%.
Even if you have bad or fair credit, I'm going to show you nine real ways to get a home equity loan. We'll talk about what lenders really care about besides your score, how to find out how much you can really borrow, and what other options you have if you can't get a regular home equity loan yet. This guide gives you a clear plan of action, whether you apply with AmeriSave or look around at other lenders. No guesswork.
Credit scores run from 300 to 850 on the FICO scale, and every lender draws the line in a slightly different place. The general breakdown looks like this. Poor credit falls in the 300 to 579 range, and you'll have a hard time qualifying for most traditional loan products at that level. Fair credit covers 580 to 669, which is where a lot of home equity lenders start accepting applications, though with tighter terms and higher rates. Good credit spans 670 to 739, very good runs from 740 to 799, and excellent sits at 800 and above.
For home equity products specifically, most lenders draw their line somewhere between 620 and 680. At AmeriSave, our home equity loan requires a median FICO score of at least 680, and the maximum loan-to-value ratio you can access depends on where your score lands. Borrowers with scores between 680 and 699 can access up to 80% LTV. Those with scores from 700 to 739 can go up to 85% LTV. And borrowers at 740 or above may qualify for up to 90% LTV.
Here's the thing to understand: when the lending industry talks about "bad credit" for home equity, they're usually talking about anything below 680. That's because home equity loans are second mortgages. The lender holding your home equity loan sits behind your primary mortgage lender in the repayment line. If something goes wrong and the home gets sold in foreclosure, the first mortgage gets paid first. The home equity lender only recovers what's left over, which might not be much.
That added risk is why requirements are stricter. It's not personal. It's math.
Before we get into rates and strategies, I want to talk about something that most mortgage guides completely ignore. The emotional weight of carrying bad credit.
In my Master's of Social Work (MSW) program, we study how financial stress affects people at a systems level. It's not just about numbers on a screen. Financial shame is real, and it changes how people make decisions. I've seen it with friends, with family, with colleagues who've confided in me during tough stretches. People avoid opening mail. They don't answer calls from numbers they don't recognize. They put off financial decisions that could actually help them because the anxiety of facing their credit situation feels overwhelming. One friend told me she knew her credit score had dropped after her divorce but didn't check it for two years because she couldn't handle seeing the number.
Here's what I want you to hear: a credit score is a snapshot, not a verdict. It tells a lender what your recent financial history looks like. It doesn't define your worth, your intelligence, or your future. The fact that you're here, reading a 5,000-word guide about how to improve your position, tells me everything I need to know about your determination. So let's channel that energy into something productive.
Rates in the home equity space have been trending down in recent months, thanks to three Federal Reserve rate cuts in the second half of last year. According to data analytics firm Curinos, the national average rate on a home equity loan is 7.44%, with the average HELOC rate at 7.23%. Both figures are based on borrowers with a minimum 780 credit score and a combined LTV under 70%, which means most real-world borrowers will pay more.
The Mortgage Reports published rate data by credit tier that gives a much clearer picture. Borrowers with excellent credit, 740 and above, typically land rates between 7.5% and 8.5%. The good credit range of 680 to 739 usually sees offers from 8.5% to 9.5%. Fair credit borrowers with scores from 620 to 679 are looking at 9.5% to 11% or higher. Below 620, most mainstream lenders won't approve you at all, and the few that will can charge rates above 11% to 12%.
Let me run through a quick example so you can see what this means in real dollars. Say you want a $50,000 home equity loan with a 15-year repayment term. At a 7.5% rate, your monthly payment would run about $463. At 9.5%, that same loan costs roughly $522 per month. That's $59 more each month, $708 more each year, and about $10,620 in extra interest over the full life of the loan. Jump to 11%, and your monthly payment hits around $569, costing you an extra $19,080 over 15 years compared to the excellent-credit borrower. That's real money.
These aren't theories. They're the approaches I've seen work through years of project work and conversations with our underwriting and production teams. Some of them take time. Some you can do this week.
You can't fix what you can't see. Before anything else, go to AnnualCreditReport.com and pull your reports from Equifax, Experian, and TransUnion. Federal law allows you to check each report once a week for free. A lot of banks and credit card companies also give you free access to your FICO score now.
When you pull those reports, don't just glance at the score. Read the actual report line by line. The Consumer Financial Protection Bureau found that credit reporting complaints made up over 80% of all complaints submitted to the bureau in recent years, with the top issue being incorrect information on credit reports. If 15% to 25% of trade lines submitted to credit bureaus contain errors, as industry data analysis firm Bridgeforce has found, the odds are decent that something on your reports isn't right.
Pay attention to old balances reported as current, accounts you've paid off that still show outstanding, duplicate account listings, and incorrect personal information. Also check whether all three bureaus show the same data. Your score can vary by 20 to 30 points between bureaus because not every creditor reports to all three. Most lenders use the middle score of the three for qualification. If your Equifax score is 658, your Experian is 672, and your TransUnion is 645, the lender uses 658.
Finding mistakes is only half the battle. You've got to dispute them, and you've got to do it right. The CFPB provides free dispute letter templates on its website that walk you through the process. Gather proof of each error, whether that's bank statements showing an on-time payment the report marks as late, or documentation that an account was closed or paid in full.
File your dispute with the credit bureau and separately with the creditor that furnished the incorrect data. The bureau generally has 30 days to investigate once you file. Here's what my colleagues in underwriting have mentioned: the first dispute doesn't always work. Sometimes the bureau's initial investigation comes back with the same information because the creditor's records are incomplete or outdated. If that happens, send more documentation and dispute again. Persistence matters.
A successful dispute on even one or two negative items can bump your score by 20 to 40 points. That kind of movement can push you from denied to approved, or from a 10% rate to an 8.5% rate.
This one might matter more than your credit score for some lenders. Your DTI ratio measures how much of your gross monthly income goes toward debt payments. Add up every monthly debt obligation: mortgage, car payment, student loans, minimum credit card payments, personal loans. Divide that total by your gross monthly income before taxes.
Let's walk through that with real numbers. Say your household brings in $7,200 per month before taxes. Your current mortgage is $1,950, car payment is $380, student loans are $250, and minimum credit card payments total $420. That's $3,000 in monthly debt, which gives you a DTI of 41.7%. Under the 43% threshold, but just barely. When you take out a home equity loan, that new payment gets added to your DTI calculation. If the home equity payment is $400 a month, your DTI jumps to 47.2%. At AmeriSave, we allow DTI up to 50% for home equity loans, which gives you more room than some other lenders. But even with that flexibility, the numbers need to work.
A surprisingly effective approach: instead of spreading extra payments across all your debts, pay off small balances completely. Eliminating a $180 car payment gives you the same DTI improvement as reducing five different payments by $36 each. Same total debt reduction, but one fewer monthly obligation looks better on paper and frees up more borrowing capacity.
Your home equity is the gap between your home's current market value and what you still owe on your mortgage. But lenders won't let you borrow all of it. Most cap your combined loan-to-value ratio at 80% to 90%, depending on your credit profile.
Here's a worked example. Your home appraises at $420,000. You owe $255,000 on your primary mortgage. That gives you $165,000 in equity, or about 39% of your home's value. With an 80% LTV cap, you could borrow up to $336,000 total across both your first mortgage and the home equity loan. Subtract your existing $255,000 balance, and your maximum home equity loan comes to $81,000. With a 90% LTV cap, available to borrowers with excellent credit, that number jumps to $123,000. That's a $42,000 difference in borrowing power based purely on your credit tier.
If you think your home may have appreciated since your last appraisal, it's worth getting a fresh estimate. AmeriSave will work with you to determine your property's current value as part of the application process.
When your credit score is borderline, your paperwork becomes your best advocate. A clean, well-organized file signals to underwriters that you're responsible, thorough, and serious about repayment.
At a minimum, gather your two most recent pay stubs, W-2 forms from the past two years, and your most recent tax returns. Self-employed borrowers typically need two full years of tax returns plus a current profit and loss statement. For asset documentation, pull two to three months of bank statements from every checking and savings account, along with retirement and investment account statements if applicable.
Don't overlook your employment verification. A letter from your employer on company letterhead confirming your title, salary, and length of employment carries real weight. If you've been with the same company for five or ten years, that stability can partially offset credit concerns in the underwriter's risk assessment. From reviewing project files over the years, the quality and completeness of the paperwork is often what separates an approval from a denial when the credit score is in that gray zone.
A co-signer with strong credit and stable income lends their financial profile to your application. The lender evaluates both applicants' credit scores, typically using the lower median score for qualification purposes, but adds both incomes together when calculating DTI. That combination can be powerful.
Take this scenario. You earn $5,500 per month and carry $2,800 in monthly debt obligations, giving you a DTI of about 51%. That's above the 50% ceiling most lenders set. Your co-signer earns $4,200 per month with $700 in existing debt. Combined, your household income is $9,700 per month against $3,500 in debt, dropping the combined DTI to 36%. That's a massive difference, and it doesn't just get you approved. It may qualify you for better rates and higher LTV limits.
But I need to be straight with you about this one. Co-signing is a serious legal commitment. If you miss payments, the co-signer's credit takes the hit. If you default entirely, they're on the hook for the full balance. Through my MSW coursework, I've studied how financial obligations between family members are one of the leading causes of relationship strain. I've watched it play out with people I care about. If you go this route, both parties need a crystal clear understanding of the commitment and a realistic repayment plan. Have the hard conversation before you sign anything.
If you applied for a new credit card or auto loan in the past few months, consider waiting before you apply for a home equity loan. Each hard inquiry on your credit report can drop your score by 3 to 5 points temporarily, and a cluster of new applications signals to lenders that you might be overextending yourself.
There's a useful exception, though. When you're rate-shopping for the same type of loan product, most credit scoring models treat multiple inquiries within a 14- to 45-day window as a single inquiry. That means you can apply with three or four different home equity lenders within a two-week period to compare rates without each application counting separately against your score.
The smartest approach is to spend two to three months improving your credit profile first, paying down balances and making every payment on time, and then do your rate comparison shopping in one concentrated burst.
National banks tend to have rigid, algorithm-driven underwriting that doesn't leave much room for context. Credit unions and community development financial institutions often have more flexibility. Some credit unions set their home equity minimum credit score at 600 or even lower, and they may be more willing to look at the full picture of your finances rather than just the score.
The tradeoff: credit unions typically require membership, which usually means living, working, or worshipping in a specific geographic area, or being affiliated with a particular employer or organization. Here in Louisville, we've got several credit unions that serve the greater Kentucky region with pretty flexible membership requirements. Your area likely has similar options. Their product offerings can be more limited than what a larger lender provides, but if your score is in the low 600s, it's worth a conversation.
I know. You need the money now. But sometimes the math says waiting a couple of months saves you thousands of dollars in the long run.
Two actions move your score the fastest. First, paying down revolving credit balances so your utilization drops below 30%, and ideally below 10%. Credit card companies usually report balances to the bureaus once per month, so a big paydown shows up within 30 to 45 days. Second, getting inaccurate negative items removed through the dispute process I covered earlier.
Our team reviewed project data from a batch of loan applications where borrowers waited 90 days before applying. One applicant started at a 645 score and really wanted to pull equity for home repairs. Instead of jumping into a loan at roughly 9.8% interest, the team suggested aggressively paying down credit card balances and correcting two reporting errors. Ninety days later, the score was 695. The improved rate saved more than $8,000 over the life of the loan. Was it frustrating to wait? Absolutely. Was it worth it? Every time.
If your score is in this range, traditional home equity loans aren't available to you right now. That's not a dead end, though. It's a starting point. Focus on the basics: pay every bill on time without exception, dispute any negative items that aren't accurate, and consider becoming an authorized user on a family member's established credit card with a clean payment history and low balance. That last move alone can add 20 to 50 points within 30 to 60 days, depending on the card's age and credit limit.
Some lenders will consider you in this range, especially at the higher end. But they'll examine every other part of your financial profile with extra scrutiny. Keep your revolving credit utilization below 30%. Aim for a DTI well under 43%, closer to 36% if you can manage it. Show at least 20% equity in your home, with 30% being better. Demonstrate stable employment history going back at least two years.
Expect to pay interest rates about 1% to 2% higher than what borrowers with good credit receive. On a $50,000 home equity loan over 15 years, that translates to roughly $5,000 to $12,000 in extra interest over the full term. AmeriSave can work with borrowers across a range of credit profiles on our home equity products, and we encourage you to reach out to see where you stand.
You're in the zone where most mainstream lenders will approve your application, assuming your DTI, equity, and income check out. The question shifts from "will I qualify" to "how do I get the best possible rate." If you can reduce your credit card utilization to under 10% before applying, you might bump your score another 10 to 20 points and move into the next pricing tier. Don't close old accounts after paying them off. The age of your credit history affects your score, and closing a 10-year-old card shortens that history.
At AmeriSave, borrowers in the 680 to 699 range can access up to 80% LTV on a home equity loan. Move into the 700 to 739 range and that jumps to 85%. On a $400,000 home, that 5% difference means an extra $20,000 in potential borrowing power.
This is where you want to be, and if you're close, it's worth taking a month or two to push past that threshold. Borrowers with scores above 740 get access to the lowest available rates and the highest LTV limits. AmeriSave offers up to 90% LTV for borrowers at this level, giving you maximum access to your built-up equity.
Bankrate's data shows the gap between the best rates and those offered to fair-credit borrowers can reach 3 to 4 percentage points. On a $75,000 home equity loan over 15 years, a 3-point rate spread means roughly $24,000 in extra interest charges for the borrower with the lower score.
This trips up a lot of people, and I want to make sure you go in with clear expectations. Under current federal tax law, the interest you pay on a home equity loan is only deductible if you use the borrowed funds to buy, build, or substantially improve the home that secures the loan. So if you borrow $50,000 against your home equity and use it to remodel your kitchen or add a bathroom, that interest is generally deductible, subject to the overall mortgage interest deduction limits.
But if you use that same $50,000 to consolidate credit card debt, pay for a wedding, or cover college tuition, the interest is not deductible. The IRS draws a hard line here, and it's based on how you use the money, not just the type of loan. This matters for your total cost calculation. A borrower in the 22% federal tax bracket who qualifies for the deduction effectively reduces their interest cost by about a fifth. A borrower who doesn't qualify for the deduction pays the full rate with no tax offset.
Keep good records of how you spend the funds. If you use part of the loan for home improvements and part for something else, you can only deduct the interest on the home improvement portion. AmeriSave can't give tax advice, but we always recommend talking to a tax professional before making assumptions about deductibility.
Getting the go-ahead is one thing. Getting the best deal is a different story. Most people only care about the interest rate when they shop for lenders. That mistake could cost you thousands of dollars.
Don't just look at the interest rate; look at the APR first. The annual percentage rate is the interest rate plus all the fees and costs that come with getting a loan, such as the origination fee and closing costs. If you keep the loan for a long time, a lender that charges 8.5% and $3,000 in fees may be more expensive than one that charges 8.75% and $500 in fees. The APR comparison makes things fair.
Look for fees for paying early. Some lenders who give home equity loans, especially those who work with people with bad credit, charge a fee if you pay off the loan early. This is important because if your credit score goes up and you want to refinance at a lower rate in two or three years, a prepayment penalty could cost you money. Ask about it ahead of time. We are open about all the fees that come with your loan at AmeriSave, so there are no surprises.
You should also check to see if the lender charges an annual fee, requires a minimum loan amount, or sets a minimum loan balance. These little things add up. During the 14- to 45-day rate shopping window I talked about earlier, get at least three quotes and put the full loan estimate documents next to each other.
Home equity loans typically carry closing costs of 2% to 5% of the loan amount. On a $50,000 loan, that's $1,000 to $2,500 out of pocket or rolled into your loan balance. But that range is a wide spread, so let me break down what's actually in there.
The appraisal fee usually runs $300 to $500 and covers a professional assessment of your home's current market value. Origination fees, which compensate the lender for processing your loan, typically range from 0.5% to 1% of the loan amount. Title search and title insurance protect the lender against any claims on your property and can cost $200 to $400. Recording fees paid to your county government typically add $50 to $150. You may also see credit report fees around $25 to $50, flood certification fees around $20, and attorney or document preparation fees that vary by state.
Some lenders, including AmeriSave, may cover certain closing costs or roll them into the loan balance so you don't pay upfront. Rolling costs into the loan is convenient but means you'll pay interest on those fees over the full loan term. On a 15-year loan at 9%, rolling $2,000 in closing costs adds roughly $1,800 in total interest. Whether that tradeoff works depends on your cash flow situation.
This is a risk that doesn't get enough attention, especially for borrowers who are already stretching to qualify. When you take out a home equity loan, you're increasing the total debt secured by your property. If the housing market cools and your home's value declines, you could end up owing more than the home is worth.
Say you have a home worth $350,000 with a $240,000 first mortgage and you take out a $60,000 home equity loan. Your total debt is now $300,000 against $350,000 in value. If the market dips 15%, your home is worth $297,500 but you owe $300,000. You're underwater. That doesn't mean the lender calls the loan or forecloses immediately. As long as you keep making payments, nothing changes day to day. But it does mean you can't sell the home without bringing cash to closing, and you can't refinance into better terms because no lender will offer a new loan on a property with negative equity.
For borrowers with lower credit scores, this risk is especially worth weighing. You're already paying higher rates, which means higher payments, which means less margin for error if something else goes wrong. I'm not saying don't do it. I'm saying go in with your eyes open about the downside.
The rules for home equity loans are different in different places. Depending on where you live, state law can make your experience easier or harder.
Texas has some of the best home equity rules in the country for protecting borrowers. The Texas Constitution says that your total mortgage debt, including any home equity loan, can't be more than 80% of the value of your home as determined by an appraisal. Even if a lender would normally agree to a higher LTV, there is no wiggle room on that. Texas also requires a 12-day cooling-off period after you close on a home equity loan. During this time, you can cancel the loan without having to pay anything. There, borrowers can't close on a home equity loan until at least 12 days after they apply.
Florida has strong homestead protections that make it hard for a creditor to force the sale of your main home. However, these protections can make it harder to borrow against your home equity. New York requires lenders to give you certain information about the risks of borrowing against your home. The state's judicial foreclosure process also means that the time frame for any default action is much longer than in states with nonjudicial foreclosure. California has fairly strong consumer protection laws, but the state's high property values mean that home equity loans can be bigger in dollar terms, which increases both the chance and the risk.
In short, it is worth taking 20 minutes to learn about the specific rules in your state before you apply. You can find the information on the website of your state's attorney general or banking regulator.
Not everyone qualifies right now, and that's okay. There are other ways to access funds or bridge the gap until your credit improves.
HELOCs and home equity loans are different products with different qualification thresholds. The minimum credit score for a HELOC at many lenders starts at 620, lower than the 680 that many home equity loan programs require. HELOCs function like a credit card backed by your home. You get a revolving credit line with a draw period, usually 5 to 10 years, during which you can borrow and repay as needed. After the draw period ends, you enter a repayment phase of 10 to 20 years.
Current HELOC rates average about 7.23% nationally, according to Curinos data. That's lower than the average home equity loan rate, but HELOCs carry variable rates tied to the prime rate, which means your payment can change as market conditions shift. If you value payment predictability, a fixed-rate home equity loan might be a better fit. If you need flexibility, a HELOC has the edge.
Cash-out refinancing replaces your existing mortgage with a new, larger one and gives you the difference in cash. Because it's a first-lien mortgage rather than a second lien, the qualification requirements can be somewhat more flexible, and rates are typically lower than home equity loan rates.
The catch? You're replacing your entire mortgage. If you locked in a low rate a few years ago and current rates are near 6.5%, you'd be giving up that favorable rate on your full loan balance just to access your equity. That rarely makes financial sense unless your current rate is already close to today's market rate. AmeriSave offers cash-out refinancing and can help you run the numbers to see whether this path saves or costs you money compared to a home equity loan.
Personal loans don't use your home as collateral, so there's no risk of foreclosure if you run into payment trouble. They also tend to close faster and require less paperwork. The downside is cost. Average personal loan rates run about 12% nationally, and borrowers with fair credit can see rates of 15% to 18% or higher.
Still, a personal loan can make strategic sense as a bridge. Borrow a smaller amount to handle your immediate need, then spend 3 to 6 months improving your credit profile so you can qualify for a home equity loan at a better rate later.
A newer option worth knowing about. Home equity investments aren't loans at all. An investment company gives you a lump sum in exchange for a share of your home's future appreciation. No monthly payments, no interest rate. When you sell the home or the agreement term ends, the investor collects their share of whatever the home is worth at that point.
Some providers work with credit scores as low as 500 to 550. The trade-off is you're giving up a piece of your home's future value, and if your home appreciates a lot, that arrangement can get expensive. This works best for homeowners who need cash, can't qualify for debt products, and are comfortable sharing future appreciation.
Numbers tell the story better than generalities. Here's a side-by-side using a $50,000 home equity loan with a 15-year repayment term.
A borrower with a 740 credit score qualifies at 7.5% interest. Monthly payment: about $463. Total interest paid over 15 years: roughly $33,370. A borrower with a 650 credit score gets offered 9.5%. Monthly payment: about $522. Total interest: around $43,990. The difference is $10,620 in extra interest over the life of the loan, or almost $59 per month.
Now look at a borrower with a 620 score paying 11%. Monthly payment jumps to roughly $569. Total interest over 15 years: about $52,380. That's $18,990 more than the 740-score borrower pays. Almost nineteen thousand dollars. For the same $50,000 loan.
Y'know, when I was gutting our kitchen a couple years back, I remember running these kinds of numbers myself and thinking about what a difference even 50 basis points makes when you stretch it over a decade. It's the kind of thing that doesn't feel real until you see it on paper. And it's exactly why the preparation work matters so much.
I get this question a lot during project reviews, and the answer is more complicated than just "yes" or "no."
Your credit score will probably go down a little bit when you first get a home equity loan. The hard inquiry takes away 3 to 5 points. If your other accounts are older, the new account will lower your average account age, which could cost you a few more points. And the fact that your total debt load is going up has an effect on your overall debt and utilization metrics.
But this is where it gets interesting. A home equity loan can actually help your score over time. Each on-time monthly payment adds to your positive payment history, which is the most important part of your FICO score (35% of the total). The loan also adds to your credit mix, which shows lenders that you can handle different kinds of debt responsibly. If you take out a home equity loan to pay off high-interest credit card debt, the change from revolving debt to installment debt can raise your score by a lot, sometimes by 20 to 40 points in just a few months, because your revolving credit utilization goes down a lot.
Paying on time every time is the most important thing. If you have a borderline credit score and you miss a payment on a home equity loan, it will hurt your score more than if you had a score of 780. Take care of what you're building.
Knowing what to expect helps you prepare and avoid surprises. The process typically moves through five stages.
First, you'll submit your application with basic information about your income, debts, employment, and the property. At AmeriSave, you can start this process online. Second, the lender pulls your credit and verifies your income and employment. Third, the lender orders an appraisal to confirm your home's current market value and calculate your LTV ratio. This usually costs between $300 and $500 and takes one to two weeks. Fourth, the underwriting team reviews your full file, including your credit, DTI, equity position, and documentation. If everything checks out, you receive a formal approval with your loan terms. Fifth, you close the loan, which involves signing paperwork and paying any closing costs. Most home equity loans close within 30 to 45 days from application.
One more thing. Federal law gives you a three-day right of rescission after closing on a home equity loan secured by your primary residence. That means you have three business days to cancel the loan for any reason with no penalty. It's a safety net, and it's worth knowing about.
Getting the green light is only half the battle. You need to take care of the loan once you get it. You can lose your home if you fall behind on your payments on a home equity loan.
If your lender lets you, set up automatic payments. If you sign up for autopay, some lenders, like AmeriSave, might even give you a small rate discount. Make a separate budget line for your home equity payment so you don't forget about it with all your other bills. And don't give in to the urge to tap equity again until you've paid off a significant amount of the current loan.
Things change in life. People lose their jobs. Things like medical emergencies happen. Last year, a family on my daughter's soccer team went through the same thing, which was a good reminder that no one is safe. Call your lender right away if you are having trouble making payments. Most lenders would rather come up with a new payment plan than go through the process of foreclosure. At AmeriSave, we work to help borrowers find solutions that work when things change.
Hey. It's not easy to get a home equity loan if you have bad credit. I'm not going to make that sound better. But it's not impossible, and the way forward is clearer than most people think. It all depends on your current credit score, how much equity you've built up, and how much work you're willing to do before you send in your application.
Every point you add to your score, every dollar you pay off on revolving debt, and every mistake you get taken off your credit report brings you closer to getting approved and getting better terms. AmeriSave can help you figure out where you stand if you're ready to look into your options. Talking about what's possible can sometimes be the best first step.
Most home equity lenders set the minimum score between 620 and 680, but the exact number depends on the lender and the rest of your financial situation. The lowest median FICO score for a home equity loan at AmeriSave is 680, and the LTV limits change based on your credit tier. Some credit unions and community banks have less strict rules for who can borrow money, so people with scores between 620 and 680 may still be able to get a loan.
Your credit score isn't the only thing that matters. Lenders also look at your debt-to-income ratio, how much equity you have in your home, how stable your job is, and how much money you have saved. Bankrate's lender survey data shows that lenders often use tiered pricing with cutoffs at 620, 680, 700, and 740. This means that even small improvements can move you into a lower rate bracket. If your score is close to one of these thresholds, consider spending a month or two working on it before applying for a home equity loan.
After you add up your primary mortgage and the new home equity loan, you will usually need at least 15% to 20% equity in your home. Most lenders will give you a loan-to-value ratio of 80% to 85% when you add up all of your loans. If your credit score is low, lenders may want even more equity to protect themselves from risk. They may want a CLTV of 75% or less.
The lender's risk assessment may take into account that you have more equity than a lower credit score. Someone with $200,000 in equity and a 650 credit score may be less likely to default than someone with $30,000 in equity and a 720 score. The Federal Reserve says that American homeowners have about $34.4 trillion in home equity. This means that a lot of people can borrow more than they think. AmeriSave can help you calculate your home equity to get a clearer picture of your borrowing capacity.
Yes, one of the best things borderline applicants can do is add a co-signer with good credit and a steady job. The lender looks at the financial profiles of both applicants. Most lenders use the lower of the two median credit scores to decide if you qualify, but they add both incomes together to figure out your DTI. This combined income can greatly lower your DTI ratio and make it more likely that you will be approved.
It's important to remember that co-signing has serious legal and financial effects on both parties. The co-signer is just as responsible for paying back the debt, and any missed or late payments will show up on both of your credit reports. According to CFPB guidance, co-signers should fully understand the terms and risks before agreeing. Explore AmeriSave's home equity loan options to learn more about the application process.
It doesn't matter what your credit score is; what matters is how you use the money from a home equity loan. As of now, you can only deduct the interest on a loan if you use the money to buy, build, or make major improvements to the home that secures the loan. No matter how good your credit is, you can't deduct the interest on a home equity loan if you use it to pay off debt, pay for school, or other personal costs.
This difference is important for figuring out how much you will have to pay in total. A borrower in the 22% tax bracket who uses a home equity loan to remodel their kitchen can lower their interest cost by about 20% thanks to the deduction. The same borrower who uses the money to pay off their credit card does not get a tax break. Always talk to a tax expert about your specific situation. For more on how to put your equity to work, see AmeriSave's guide to using home equity wisely.
The timeline depends on where you start and what is lowering your score. If your main problem is that you use your credit cards too much, paying off balances that are less than 30% of your limit can raise your score by a noticeable amount in 30 to 45 days. It can take 30 to 60 days for each dispute cycle to get rid of wrong negative items and fight errors.
If you stick to an aggressive plan to improve, you can realistically raise your score by 30 to 50 points in 60 to 90 days. It usually takes 6 to 12 months of consistently good behavior, like paying bills on time, paying off debt, and keeping your credit report up to date, to see improvements of 100 points or more. While you're working on your credit, learn about the steps to get mortgage-ready so you're fully prepared when the time comes.
It mostly depends on the interest rate on your mortgage right now. A home equity loan is a second lien on your home, which means that your original mortgage rate stays the same. With cash-out refinancing, you get a new, bigger loan that pays off your old mortgage and gives you the difference in cash. Taking out a home equity loan keeps your low rate if you locked it in a few years ago. The second loan will cost you more, but the first mortgage will stay cheap.
If your current mortgage rate is already close to today's rates of 6% to 7%, cash-out refinancing makes more sense. First-lien mortgage programs also tend to accept credit scores that are a little lower than those of second-lien home equity products. Bankrate's survey data shows lenders often accept scores as low as 620 for a conventional cash-out refinance. AmeriSave offers both home equity loans and cash-out refinancing, and our team can help you compare the total cost of each option.
Yes, applying does cause a hard inquiry on your credit report, which can lower your score by 3 to 5 points for a short time. That drop usually comes back up in a few months. FICO and VantageScore's credit scoring models treat multiple home equity inquiries made within a 14- to 45-day window as a single inquiry. This means you can shop around with several lenders during that time without getting hit with multiple inquiries.
In the long run, the new account will actually help your credit. Every time you make a payment on time, it adds to your good credit history. An installment loan also adds variety to your credit mix. If you use a home equity loan to pay off credit card debt, switching from revolving to installment debt can raise your score by 20 to 40 points in a few months. Learn more about how home equity borrowing affects your finances in AmeriSave's guide to debt consolidation with a home equity loan.
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