How to Obtain a Home Equity Line of Credit With Bad Credit?

How to Obtain a Home Equity Line of Credit With Bad Credit

How to obtain a home equity line of credit with bad credit is a great question. Getting a home loan may seem like a perplexing problem if you have a bad credit history. Most banks rely on your past credit records before sanctioning a loan. If you have a bad credit record, your loan application will likely be rejected. We at Lend Today are here to solve your problem by guiding you on how you can get a home equity line of credit with bad credit.

Before understanding the process of getting a HELOC, it is essential to be clear about its meaning.

What is a HELOC?

A home equity line of credit is a revolving credit line that works similarly to a credit card. A HELOC allows a borrower to borrow money up to a prescribed limit against the credit line. With a HELOC, the borrower can make the necessary payments and then take out the money again. A home equity line of credit comes with fluctuating rate of interest as compared to home equity loans that come with a fixed interest rate. A HELOC typically has a draw period and a credit limit within which the borrower can take the money, then repay it with interest and borrow again without exceeding the prescribed limit.

A HELOC is a secured loan against house equity that helps borrowers to take up a desired amount of money for paying big expenses, such as home repairs and improvements, unexpected expenses, and medical bills. Getting a HELOC means putting another mortgage on your property which is also known as a second mortgage. We, at Lend Today, help you secure a second mortgage to help you pay your expenses on time.

Benefits of getting a HELOC:

Most people benefit from getting a Home Equity Line of Credit in the following ways:

  • Debt consolidation:

Financing debt consolidation is one of the most popular reasons for getting a HELOC. Debt consolidation helps to repay monthly debt installments under a single monthly payment. A HELOC is beneficial for those who are dealing with multiple debts.

  • Home repairs and improvements:

Getting your house renovation and repairs may seem like an easy task but require a lot of patience and money. Financing your house repairs can be made easy with HELOC which offers the borrowers to take out the money as and when they need it.

  • Paying education bills and other expenses:

Paying huge bills concerning education and other sectors is a burden faced by most Canadians. Using a HELOC to finance educational loans is the right choice for you due to the enhanced flexibility it has to offer.

  • Unexpected expenses:

The future is uncertain and holds many uncertain events that may result in incurring unexpected expenses. Whether these expenses relate to housing repairs or emergency medical needs, getting a secure method to make these payments is necessary. HELOC is the way to finance these expenses without any excessive financial burden.

Is a home equity line of credit the right choice for you?

Home loans pose a greater risk for lenders than borrowers. That’s why lenders resort to assessing the credit history before sanctioning these loans. A HELOC uses your house as the collateral which means it poses a lesser risk for the lender.

If you have a poor credit history, you can still explore other factors that make you eligible for securing a HELOC and help finance your expenses easily. Some of the factors that we consider while calculating your eligibility for a HELOC are stated below:

Debt-to-income ratio:

A stable income source with sufficient funds allows us to make sure that you are capable of paying back your home loan. A debt-to-income ratio is the total of all debts you pay monthly divided by the gross monthly income.  

For instance: If you have a $1,000 monthly mortgage payment along with a $600 car loan payment, then your total monthly debt amounts to $1,600. If you have a gross monthly income of $5,000, your debt-to-income ratio would be 32%.

Most lenders in Canada allow up to 43% of DTI to qualify for a second mortgage. But this percentage may vary depending on the lenders.

Available house equity:

With HELOC, you use your home as collateral which reduces the risk of the lender. The amount of money you can borrow depends on the equity in your home. More equity in your house means lesser risk in the home equity line of credit. You can typically borrow an amount equal to 80-85% of the value of your house after deducting the amount due on the mortgage.

Recent credit history:

You can improve your bad credit score if you have recent timely payments. We check your recent transactions and access your capability of repaying the debt. If your recent payments are made on time, then you can get a HELOC easily.

Getting a home equity line of credit with bad credit:

You can get your HELOC application approved even with a poor credit report. Many factors varying from lender to lender are considered while approving a HELOC application. We can help you select a reliable lender that works with applicants having a bad credit scores.

Every lender sets their parameters for the minimum credit score required by the applicants applying for a home equity loan or a HELOC in Canada. Lenders use the information about your recent credit score, debt-to-income ratio, and other factors to analyze your application.

The process of acquiring a HELOC is similar to applying for a mortgage. The lender requires some documents essential for the verification of identity and authentication of the property and its ownership. These documents include original ownership documents that verify you to be the owner, the previous mortgage details, and income or employment proof.  

The optimum credit score varies according to the lenders in Canada. Some of the commonly accepted scores are:

  • 760 and above: Most lenders provide applicants with this score the best rates for a HELOC.
  • 700-759: Most likely, the applicants in this score range qualify for credit but may not be given the best rates.
  • 621-699: Applicants in this category are more likely to pay higher interest rates depending on the lender they select.
  • 620 and below: Most applicants in this category may have trouble applying for credit.

The bottom line:

At Lend today, we make sure that bad credit does not get in your way of securing a home equity line of credit. A home equity line of credit may be your gateway to transforming your poor credit into good credit. If you are having trouble getting a HELOC in Canada, due to bad credit, then we can assist you by connecting you to the right lender and serving your needs.

Contact us to explore your options and get through guidance from our expert representatives for getting a home equity line of credit.   

David Jeffrey