How to Get a HELOC With Bad Credit

Tom BurchnellReviewed by

Need help getting a HELOC with bad credit? Keep reading to learn your options.

If you’re a homeowner looking to pay down high interest debt or finance home renovations, there are always options whether you are paying to mortgage lenders or non QM lenders. 

For example, you can convert some of your home equity into cash with the help of a home equity line of credit (HELOC). A HELOC can help you pay for ongoing expenses such as home renovations or monthly bills. However, those with poor credit history may worry about their options.

If you’re wondering if you can get a HELOC with bad credit, there’s good news. It’s possible, although a little more challenging. 

Below, we’ll explain how you can boost your chances of getting a HELOC loan with bad credit. We’ll also discuss other ways you access cash through your equity.

Can You Get a HELOC With a Low Credit?

So, can you qualify for a HELOC? You may be able to, but it depends on a variety of factors. 

When you apply for a HELOC, your home equity lender will:

  • Appraise the current value of your home
  • Calculate your debt-to-income ratio
  • Verify your annual income
  • Determine your loan-to-value ratio
  • Review your credit score and credit history

As you can see, your credit score is a key part of the process, but it’s not the only factor that matters. 

What is the Minimum Credit Score for HELOC?

Most lenders require you to have a credit score of 620 or above to qualify for a HELOC. Some lenders have credit score requirements as high as 680. 

If you have a low credit score, you may still be able to find a lender that’s willing to work with you. You’ll just need to shop around for a flexible lender. 

You can increase your HELOC approval chances by ensuring the rest of your application is strong enough to make up for your poor credit score. 

How Can I Get a HELOC With Bad Credit?

To boost your chances of getting approved for a HELOC with bad credit, it helps to have:

  • Substantial equity in your home 
  • A low debt-to-income ratio (well below the required 43% minimum)
  • Stable employment history
  • A high-paying job that provides a reliable income
  • History of making on-time debt payments

Even if you check all of these boxes, having a good credit score can make the application process much easier. It can also help you qualify for more favorable HELOC terms. 

For these reasons, you may want to wait a few months before you apply for a HELOC. During this time, you can do the following things to better your credit score, such as:

  • Disputing any errors on your credit report
  • Paying off debts that have gone to collection agencies
  • Holding off from applying for new credit for six to 12 months
  • Making all of your credit payments on time

If you have a friend or family member with excellent credit, you could also ask if they’re willing to add you as an authorized user on a credit account.

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Risks of Getting a HELOC With Bad Credit

Even if you get approved for a HELOC with bad credit, the loan term may not be as great as you hoped. 

Borrowers with bad credit typically receive HELOCs with higher interest rates. If you’re pursuing a HELOC in hopes of securing a lower interest rate, you may be disappointed with your lender’s offerings. 

Additionally, you’ll have to take on the risk of potentially losing your home. A bad credit score often indicates that you’ve struggled to repay your debts on time in the past. When it comes to HELOCs, you don’t want to make this mistake. After all, defaulting on your HELOC payments can end in foreclosure. 

HELOC Alternatives For Bad Credit

Fortunately, a HELOC isn’t your only option for borrowing money with bad credit. You can also look into:

  • Home equity loans – If you are wondering if you can access your home equity with bad credit, the answer is yes. A home equity loan lets you borrow money from your equity in a lump sum. Home equity loans have a fixed rate and loan terms of 10 to 20 years.

    The credit score requirements for home equity loans are similar to those for HELOCs. If you have bad credit, some lenders may approve your application, but you’ll have to fulfill additional requirements.
  • Sale-leaseback programs – A great alternative for homeowners with bad credit is a sale-leaseback program. These programs let you access your home equity without filling out any loan applications, paying costly interest fees, or moving out of your home. All you have to do is sell your home and lease it back from the buyer.
  • Cash out refinancing – With a cash out refinance, you replace your current mortgage with a new mortgage for a larger amount. You can pocket the difference in cash to use towards personal expenses. 

To qualify for a cash-out refinance, you generally need at least 20% equity in your home and a credit score of 620 or above. However, the credit score requirements can be a little more flexible than with a home equity loan or HELOC.
Just keep in mind that refinancing your mortgage will adjust all of its terms. You may end up with a much higher interest rate and monthly payment amount than you have right now due to your bad credit score. 

  • Unsecured personal loans – Unsecured personal loans let you borrow money without putting up any collateral. They come with shorter loan terms, fixed interest rates, and smaller loan amounts than HELOCs.
    Unsecured personal loans often have a higher interest rate than their equity-backed counterparts.
    As with HELOCs, most lenders require you to have a good credit score to qualify for a personal loan, though some lenders create personal loans specifically for borrowers with bad credit. 
  • Reverse mortgages – If you're 62 or older and have over 50% equity in your home, you may qualify for a reverse mortgage loan. It lets you borrow money from your home equity in a lump sum, revolving line of credit, or monthly payment schedule.
    With this form of financing, you don’t need to repay any money you borrow until you sell your home or pass away. As a result, your mortgage balance will increase over time.
    Fortunately, there’s no minimum credit score requirement to qualify for a reverse mortgage. However, a reverse mortgage may not be a viable option if you plan to move out of your home in the future or leave your home as an inheritance. 

EasyKnock: A HELOC Alternative

When you need to borrow money, a bad credit score can significantly limit your options. Even if you get approved for a HELOC with bad credit, it may not be the best choice for your financial health due to the less favorable terms you’ll receive.  

Whether it’s because you’re trying to access home improvement loans with bad credit or need a HELOC to pay off debt, EasyKnock doesn’t have any credit score requirements. Instead, our sale-leaseback solution helps you unlock your equity so that you can meet your financial goals, whether they entail buying a vacation home or enjoying your retirement. You sell us your home and lease it back for as long as you want. In the meantime, you have access to your home’s equity.

To learn more, reach out to us today.

Related Content: 

Can You Get a Bridging Loan With Bad Credit?

This article is published for education and informational purposes only. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process.

Sources:

  1. Bankrate. What to know before your HELOC draw period ends. 
    https://www.bankrate.com/home-equity/heloc-refinance-draw-period-ends/
  2. Bankrate. Home Equity Line of Credit (HELOC) Rates in June 2021. 
    https://www.bankrate.com/home-equity/heloc-rates/
  3. U.S. News. Average Credit Card APR. 
    https://creditcards.usnews.com/articles/average-apr
  4. Bankrate. Requirements for a home equity loan or HELOC in 2021. 
    https://www.bankrate.com/home-equity/requirements-to-borrow-from-home-equity/
  5. Experian. Is a Reverse Mortgage Right for You?
    https://www.experian.com/blogs/ask-experian/how-does-a-reverse-mortgage-work/
Tom Burchnell
Product Marketing Director

Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast. 

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