It may seem pretty unfair that so many options for accessing the equity that you’ve built in your home are unavailable to you if your credit score isn’t so hot. After all, it’s money that you’ve invested into your home. Building that equity is a big reason that so many people buy a home instead of renting one, but it can be difficult to fall back on that investment if you don’t have a decent credit history.
It’s not totally impossible, though. Here are a few ways to tap your home equity if you have bad credit.
Home Equity Loans or HELOCs
The good news is that, even if your credit isn’t great, you may qualify for certain home equity loans or HELOC (home equity line of credit) programs. However, the terms you’ll be offered are likely to be less than you’d maybe imagined. This could mean that your interest rate is higher than average, or that the amount you’ll be allowed to borrow isn’t as much as you think it should be.
It’s important to remember that these loans are secured with your home, meaning that the bank gets your home if you’re unable to repay the loan.
Subprime Cash-Out Refinancing
Sometimes, when people need cash from their equity, they may be able to refinance their mortgage and receive cash, even if their credit score is poor. While this may allow you to get the cash you need right now, it may not be a feasible option in the long run. This is because, ultimately, your new mortgage terms will be less favorable and potentially up your monthly payment. If you need cash now, it’s likely that paying more every single month for your mortgage payment isn’t really a viable option.
This type of equity tap is only available to people of retirement age, so aside from any credit requirements, it simply won’t work for a good portion of the population. If you are 62 or older, however, you may be able to get a reverse mortgage with less than stellar credit, particularly if you don’t necessarily have a negative credit history, but just not enough of a positive one to provide you with a good credit score as sometimes non-traditional credit reports will be considered by certain reverse mortgage lenders.
Selling Your Home
This may be the obvious answer if you need access to the equity in your home and a bad credit score, as long as you have enough time to get it sold and moving is no big deal to you.
Residential Sale Leaseback
A relatively new idea when it comes to homes, a sale leaseback will allow you to sell your home and then rent it back, pocketing a hefty chunk of the equity you’ve built. EasyKnock offers a residential sale leaseback solution that is asset-based, meaning it doesn’t depend on your credit score, but on the amount of equity you have.