A home equity loan with bad credit can help you unlock large amounts of capital that you can use to finance everything from home renovations to debt repayments. Typically, home equity loans are popular and more favourable because they have lower interest rates than any other type of loan.
Using this type of loan to pay off debts and cover renovation costs is quite a smart move. However, being a homeowner is not the only requirement to borrow against your house. First, you need to own a home with less on the mortgage than the house’s worth, and the amount you can take depends on your home’s appraisal value.
Second, your creditworthiness, commonly known as your credit score, must be satisfactory for a lender to decide if you’re responsible enough to repay the loan on time.
But if your credit score is less than the required threshold, don’t worry. It’s still possible to get bad credit home equity loans.
Learn how you can qualify for a home equity loan with bad credit.
Check Your Credit Score
Your credit score affects loan terms and odds of approval. Lenders will be looking for adverse events such as judgments or liens, bankruptcies and foreclosures. For example, if declared bankrupt, lenders will only consider your loan application after the bankruptcy is lifted.
Obtain a copy of your credit report to know what your score is ahead of time. Simply contact Equifax or Transunion to obtain a copy of your recent credit report. Once you get it, check to see if there’re any errors or signs of fraud, such as credit cards that aren’t yours or accounts that you don’t recognize. Reporting this to the credit bureau can help improve your credit score.
Also, to improve your credit score, make a point of paying all your bills on time, keep your credit cards open, pay off some debts, if not all, and avoid applying for new cards.
Evaluate Your Debt-to-Income Ratio
Most borrowers can get a home equity loan Ontario even with bad credit. That’s because lenders like to have property as collateral, and in this case, you’ll be using your home as a guarantee for the loan. It would be best to improve your chances of getting a low-interest rate by knowing your debt-to-income ratio.
The debt-to-income ratio (DTI) indicates the amount used to pay off debt using your income. To calculate DTI, divide your monthly debt by your gross monthly income. Monthly debt includes credit card payments, loans and other financial obligations.
A high DTI is a turnoff to lenders because it indicates that most of your income goes towards paying off debt, and that means you have less money to pay off expenses, such as a home equity loan in Canada. Even if you can make the payments, there’s a chance that in the future you may get into financial hardship, making it difficult to repay your home equity loan. Do your best to keep your debt-to-income ratios low.
Find Out Your Loan to Value Ratio
A lender will need an appraisal to know the value of your home. An appraisal helps a lender determine how much of a loan you are eligible for.
LTV is a measure of your home value versus an outstanding mortgage loan. Before calculating it, you need to have a professional evaluation of your house to know its worth. Lenders take into account the total amount you intend on borrowing versus the appraised value of the home. Also, they assess your ability to repay the home loan whether you can take the full amount you are approved for or not.
Therefore, the key factors are what you owe, and the home’s market value currently. In most cases, you are able to borrow up to 80% of your property’s value.
Consider Bringing on a Cosigner
Think of a family member or friend with high creditworthiness, at least better than yours, to cosign the bad credit home equity loan. This will give you the ability to qualify for the loan and get competitive interest rates. Make sure to inform the cosigner of the implications. Let them understand that it could impact their credit score and they can even be asked to make payments in the event of default.
Ensuring You Get the Best Home Equity Loan with Bad Credit
A low credit score does not automatically mean a higher interest rate. In-fact, it may be easier to qualify just using the equity in your home. There could be several options available to you to get a home equity loan. To do this, we shop around to secure the best possible financing options available in the market.
There’re various home equity loan lenders, ranging from credit unions, banks and direct lenders. Each lender has unique guidelines and products, and getting a custom quote from each of them can help you determine the best possible terms for your situation. We compare all options to ensure your getting the loan the suits your needs. Ensuring you have a monthly payment that fits your budget.
Documents You May Need
Unlike a traditional bank a home equity loan with bad credit means less documentation. Alternative lenders all have varying document requirements based on each borrower. A lender approval will outline any and all documents required to complete your new home equity loan.
Consider the Amount of Home Equity Loan You Intend to Borrow
It can be tempting to maximize the amount of loan you intend to borrow, probably to cover any financial emergencies that may arise, but it’s not always necessary. Remember, with a home equity loan, you’ll be paying full interest on the total balance, which means you should budget accordingly, especially if your spending discipline is not under control.
Get Home Equity Loan with Bad Credit in Canada Today
Getting a home equity loan with bad credit has never been easier than today. Using your home’s equity to secure a loan is a great way to consolidate debts, pay down tax arrears, complete renovations, and turn your credit into good credit.
At LendToday, we understand that applying for a bad credit home equity loan can be challenging. Busy schedules and bills to pay can have you confused and frustrated. That’s why we always have a team available and ready to help you make the right decision. We try as much as possible to understand your situation and consider it when giving a custom solution.
If your looking for help contact us at 1-855-242-7732 or apply online today.