Need Home Equity Loans Bad Credit Stopping You?

Do you need a home equity loan? Do you have bad credit? Do you know what a home equity loan is? Is a home equity loan right for you? Read on and find out!!

The first thing you need to know is what equity is. Equity is the difference between how much the home is worth and how much you owe on the mortgage or mortgages, if you have more than one property. For example if you buy a house for $200,000. With a down payment of $20,000 and then you borrow $180,000 to purchase the home. The day you buy the house, your equity is the same as the down payment $20,000. This is figured by subtracting the amount owed from the purchase amount. $200,000 - $180,000 = $20,000.
Five years later if you have been making your monthly payments faithfully, and have paid down $13,000 of the mortgage debt, then you would owe $167,000. During this time, the value of your home has increased. If it is now worth $300,000, your equity would be $133,000. $300,000 - $167,000 = $133,000

A home equity loan is when you turn your equity into cash by taking out another mortgage on your home. You can use this money to pay bills, pay for college, go on vacation, or whatever you want to use it for.

Now comes the part where your credit rating plays a part in the process. Your credit rating helps determine your interest rate. If you are getting a home equity loan from the same bank you have your home loan through, you have a better chance of getting your loan accepted if you have bad credit. Banks will look at your credit report to determine if they want to accept your loan application. If you have a history of on time payments with your current bank, they may be willing to take a chance on you. They may be willing to overlook your credit because you have been a good client in the past. If you have ever been late on a payment or missed a payment, they may not be so gracious, so make sure you always pay on time. If your bank turns you down, there are many other banks and lenders that specialize in working with people with bad credit. Be prepared to have a higher interest rate than the average loan because of your credit. The bank is taking a big risk by extending you credit; they will want higher compensation for the high risk.

Your credit has a big part in getting a home equity loan, but it is not the only deciding factor. You will be placing your home up as collateral, so the loan is partially secured. You may have higher rates, and you may have more stipulations in your terms of service, but if you own your home, getting a home equity loan with bad credit should be a fairly easy process. Do your homework before walking into the bank, so you are prepared and getting the loan will be as simple as finding the right lender.