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.
