Writer: Aaron Crowe
Editor: Lillian Guevara-Castro
Reviewer: Ashley Fricker
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Key Takeaways
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Rocket Mortgage is our top choice for its simple online process and predictable monthly payments.
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Bad credit isn’t necessarily a dealbreaker if your income, debt, and home equity are in good shape.
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Compare your options carefully. Whether you choose a loan, HELOC, or home equity agreement, make sure you understand the costs and risks.
Home equity loans for those with bad credit can help make large expenses, like remodeling your home or paying for your children’s college, achievable even if your credit isn’t perfect.
Not everyone has the necessary credit score to qualify for a low-interest loan or enough savings in the bank to pay outright for remodeling work. But if you have equity in your home, you can make your home work for you by borrowing against the value of your home.
Best Home Equity Loans For Low Credit Scores
Some lenders specialize in providing loans to people with bad credit, including home equity loans. These may have higher interest rates than those for homeowners with good credit. But they give people with bad credit a chance to borrow against their home’s equity to make home improvements or other big purchases they want.
Here are the best home equity funding options we’ve found for people with lower credit scores:
- America’s largest mortgage lender
- The entire process is completed online
- Options for new mortgages and refinancing existing mortgages
- Award-winning customer service and cutting-edge digital platforms
- More than 90% of clients would recommend us
- See application, terms, and details
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| Varies | 1985 | 5 minutes | 9.5/10 |
You’ve probably heard of Rocket Mortgage, America’s largest mortgage lender. It can also help you get a home equity loan if you meet its requirements, which will include a look at the amount of equity you have (determined through an appraisal), your credit score, and your debt-to-income ratio.
Rocket Mortgage considers your credit score alongside the amount of equity you have and your debt-to-income ratio. Requirements vary by product, so homeowners with lower scores may still find an option through Rocket, particularly if they have sizable equity and room in their budget for the new payment.
2. Unlock
- Access up to $500,000 in home equity with NO monthly payments
- Ability to use funds for any reason
- Minimum 500 FICO required — no impact on your credit score
- No age or income restrictions
- Not available in every state; terms and conditions apply
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| No Interest | 2020 | 10 minutes | 9.0/10 |
Unlock can be an excellent funding source for homeowners with FICO scores as low as 500. It offers home equity agreements (HEAs), which allow homeowners to access some of their home’s equity without making monthly payments.
Unlock can get you cash in just one to two months. Unlike HELOCs or home equity loans, this funding has no interest rate because it involves exchanging a percentage of your home’s future value for the money.
You must maintain the property and pay your mortgage and taxes while the agreement is in place, and you can also buy back your equity at any time without selling your property.
3. eMortgage
- Get today’s mortgage rates from the top mortgage lenders and banks
- Easily compare and choose mortgage lenders with no obligations or fees
- Review current mortgage rates side by side
- Pick mortgage lenders that meet your specific needs
- Compare rates from pre-qualified and approved mortgage lenders — 100% online, 100% free
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| Varies | 1979 | 4 minutes | 8.5/10 |
eMortgage helps consumers shop for loans from its vast lender network. Simply fill out the home equity request form by providing your home’s worth, remaining mortgage balance, how much you want to borrow, and your contact details.
It will send your request to its lender network, after which up to five competing offers will be sent to you within minutes. You select the loan you want and can talk with loan officers if you have questions or want to haggle over the price, or you can apply online.
- Options for home purchase or refinance
- Get 4 free refinance quotes in 30 seconds
- Network of lenders compete for your loan
- Trusted by 2 million+ home loan borrowers to date
- Interest rates are near all-time lows
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| Varies | 2004 | 4 minutes | 8.5/10 |
FHA Rate Guide helps homeowners compare refinancing offers from a network of lenders. A cash-out refinance replaces your current mortgage with a larger loan and pays you the difference in cash, giving you another way to access the equity in your home.
This option may appeal to borrowers who don’t qualify for a traditional home equity loan, but it changes the rate and terms of their primary mortgage. Compare the new interest rate, monthly payment, closing costs, and mortgage insurance requirements before deciding whether refinancing makes sense.
- Loan programs include Home Grant® program and Down Payment Grant program
- Variable and Fixed-Rate loans available with flexible qualification guidelines.
- Up to 100% financing—with as little as zero down payment for qualified borrowers.
- Maximum income and loan amount limits apply.
- See application, terms, and details.
| Interest Rate | In Business Since | Application Length | Reputation Score |
|---|---|---|---|
| Varies | 2008 | 5 Minutes | 7.0/10 |
Another big lender that you’ve probably heard of, Bank of America offers a home equity line of credit to homeowners with a credit score of at least 660 and at least 15% equity in their homes. A HELOC lets you borrow against your available equity as needed rather than receiving all the money in one lump sum.
Bank of America’s HELOC has a variable interest rate, but borrowers can convert part of their balance to a fixed-rate option for more predictable payments. The lender advertises no application fee, annual fee, or closing costs on lines up to $1 million, although credit approval, property eligibility, and other terms apply.
Understand Your Home Equity Options
Home equity loans aren’t the only way to turn your home’s value into cash. This two-minute video explains how home equity loans, HELOCs, and home equity agreements work so you can compare their costs, repayment structures, and potential risks.
Steps to Qualify and Apply For a Home Equity Loan
Qualifying for a home equity loan involves checking your credit, determining how much equity you have, reviewing your debts, and comparing lenders. Following these steps can help you understand how much you may qualify to borrow and prepare for the application process.
1. Check Your Credit Score
Start by checking your credit score. A good score will make it easier to qualify and receive favorable loan terms. If your score is below 620 and you can put off the expense, it may be worthwhile to improve your credit before applying.
2. Estimate Your Home Equity
Equity is the difference between your home’s current value and the remaining balance on your mortgage. You build equity by gradually paying down your mortgage, and rising property values may also increase it.
Lenders generally require homeowners to retain at least 15% to 20% equity. An appraisal may be required to confirm your home’s current value.
3. Calculate How Much You May Be Able to Borrow
Many lenders limit your total mortgage debt to around 80% to 85% of your home’s value. To estimate your potential borrowing limit, multiply your home’s value by the lender’s maximum combined loan-to-value ratio and subtract your existing mortgage balance.
Suppose your home is worth $350,000, you owe $200,000, and the lender permits a combined loan-to-value ratio of 85%:
- Multiply $350,000 by 85% to get $297,500.
- Subtract your $200,000 mortgage balance.
- Your estimated maximum home equity loan would be $97,500.
Your actual loan amount will depend on the lender’s requirements, your credit, income, debts, and the appraised value of your home.
4. Review Your Debt-to-Income Ratio
Next, check your debt-to-income ratio, or DTI. This compares your monthly debt payments with your gross monthly income. Paying down debt before applying may lower your DTI and improve your chances of approval.
5. Compare Several Lenders
Research home equity loan rates at banks, credit unions, and online lenders. You can also shop through a lender network, such as eMortgage. Compare interest rates, APRs, closing costs, repayment terms, and qualification requirements rather than accepting the first offer.
6. Gather Your Documents and Apply
Prepare documents such as pay stubs, tax returns, bank statements, proof of homeowners insurance, identification, and information about your current mortgage. The lender may request additional records and order an appraisal during underwriting.
Processing can take several weeks, depending on the lender, property, appraisal, and complexity of your application. Responding quickly to document requests can help keep the process moving.
Can I Get a Home Equity Loan With Bad Credit?
Yes, though having a bad credit score reduces your chances of approval. Using your home as collateral, a home equity loan lets you borrow against the equity you’ve built up in your home. You receive the cash as a lump-sum payment that you repay at a fixed interest rate for a set period.
Equity is the difference between your home’s value and what you owe on your mortgage.
A home equity loan acts as a second mortgage, leaving your primary mortgage payments unchanged. Your current mortgage remains the same, and the new loan is repaid separately. A lender will consider your credit score along with factors such as your income, debt-to-income ratio, payment history, and the amount of equity you have.
If you’re approved with bad credit, a lender may offer less favorable terms, including a higher interest rate, a smaller loan amount, or stricter equity requirements. The loan is secured by your house, so missing payments can lead to foreclosure. Make sure you can afford both mortgage payments before borrowing against your home.
What Is the Minimum Credit Score for a Home Equity Loan?
Your credit score is one of the key factors in qualifying for a home equity loan or home equity line of credit. The lower your score, the more likely you are to be charged a higher interest rate.
Most lenders look for a FICO score of at least 680, according to Experian, one of the three major credit bureaus. But requirements vary, and some lenders may approve borrowers with lower scores if other parts of their financial profile are strong.
A score of at least 700 may give you a better chance of receiving favorable terms. If your score is between 660 and 700, you may be charged a higher interest rate, and other factors — such as your income and payment history — may need to be in good shape.
How Much Equity Do I Need to Qualify?
Most lenders require you to have at least 15% to 20% equity in your home to qualify for a home equity loan or HELOC. Equity is the difference between your home’s appraised value and the remaining balance on your mortgage.
The lender will typically request an appraisal to determine your home’s current value and calculate your combined loan-to-value ratio. This ratio compares your home’s value with the total amount you would owe on your primary mortgage and the new home equity loan.
Having more equity can help overcome a poor credit score because it reduces the lender’s risk. If you don’t repay the loan and the home is sold through foreclosure, having more equity makes it more likely that the sale will generate enough money to cover both mortgages.
What Is the Difference Between a Home Equity Loan and a Home Equity Line of Credit?
Home equity loans and home equity lines of credit, called HELOCs for short, both allow homeowners to borrow against the equity in their homes. The amount you can borrow with either option depends on your equity, your home’s market value, and the lender’s requirements.
Here are the main differences between a home equity loan and a HELOC:
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| How funds are received | One lump-sum payment | Borrow as needed during the draw period |
| Interest rate | Usually fixed | Usually variable |
| Monthly payments | Predictable principal and interest payments | May change based on the balance and interest rate |
| Interest charged | On the full loan amount | Only on the amount borrowed |
| Access to additional funds | Requires a new loan | Funds can be borrowed again as the balance is repaid |
| Best for | A large expense with a known cost | Ongoing or unpredictable expenses |
A home equity loan provides a lump sum that is usually repaid at a fixed interest rate over a set period, typically ranging from five to 30 years. Because the rate is fixed, your regular monthly principal and interest payments remain predictable throughout the loan term.
A HELOC is a revolving line of credit that lets you draw money as you need it. You pay interest only on the amount you borrow rather than the entire credit limit. HELOCs usually have variable interest rates, so your rate and monthly payment can rise or fall over time. Some lenders offer an introductory rate or allow you to convert part of your outstanding balance to a fixed rate, but these features vary.
A HELOC may be useful when you don’t know exactly how much an ongoing project will cost. A home equity loan may be better when you need a set amount for one large expense and prefer predictable monthly payments.
How Much Are Home Equity Loan Closing Costs?
Fees help lenders cover the cost of processing and closing a home equity loan. Closing costs often range from 2% to 6% of the loan amount, although the total varies by lender, loan size, location, and property.
Here are some fees you may encounter:
- Origination or application fee: Covers the cost of initiating and processing the loan.
- Appraisal fee: Pays for a third party to determine the value of your home.
- Credit report fee: Covers the lender’s cost of checking your credit.
- Title search and title insurance: Identifies ownership issues or liens and may protect the lender against title problems.
- Recording or tax stamp fee: Covers charges imposed by state or local governments.
- Attorney, notary, or document preparation fee: May apply depending on the lender and where you live.
- Flood determination or insurance costs: May apply if the property is in a flood zone.
Some lenders cover or waive certain upfront costs, particularly for HELOCs. However, a plan with no closing costs may charge annual membership, transaction, inactivity, early-closure, or other fees. Review the lender’s disclosures to understand both the upfront and ongoing costs.
Some lenders also allow closing costs to be rolled into the loan. This reduces the amount you pay upfront but can cost more over time because you’ll pay interest on those fees. Shop around, compare costs and interest rates, and try to borrow only what you need.
Can I Use a Home Equity Loan For Debt Consolidation?
Yes, you can consolidate your debts and pay them off with a home equity loan. Most lenders won’t ask what you’re using the money for, but some may require that it only be used for certain expenses, such as home renovations. If that’s the case, then you’ll have to find another way to consolidate your debts, such as through a personal loan.
If it is allowed, you’re in luck. Home equity loans often have lower interest rates than other types of debt consolidation, which may make monthly payments more manageable.
Paying off your credit cards and other debts by merging them into a single debt that’s paid off by a loan or debt management program is an effective way to avoid high-interest credit card debt.
Debt consolidation lowers the interest rate on your bills and is something you can do yourself with a large enough loan to pay off the cards with the highest interest rates first.
Just be sure you want to do it with a home equity loan. The loan will increase your debt and requires making monthly payments. If you can’t limit your spending and rack up more debt, you could be in a worse position than you were before taking out the loan.
Your home is also the collateral for the loan. This is good news in one sense: a secured loan often has a lower interest rate than other types of loans, including credit cards.
| Potential Benefits | Potential Risks |
|---|---|
| One monthly payment instead of several | Credit card debt becomes debt secured by your home |
| Possibly lower interest rate | Missing payments could lead to foreclosure |
| Fixed payments may simplify budgeting | Closing costs can reduce your savings |
| Paying off high-interest balances may save money | Running up new card balances could leave you deeper in debt |
The biggest potential downside, of course, is losing your home to foreclosure because you missed a monthly payment on the second mortgage while still trying to pay off credit card debts. And, as mentioned above, a home equity loan comes with closing costs. Make sure these extra costs are worthwhile to consolidate your debts.
Can I Get a Home Equity Loan After Bankruptcy?
While bad credit can make getting a home equity loan more difficult, a recent bankruptcy can sink your chances altogether. Bankruptcy can be a life-altering financial event, so lenders have good reason to shy away from consumers who have recently experienced one.
But that reluctance certainly doesn't last forever, especially if your home makes it through the proceedings unscathed. Lenders will feel comfortable if you can secure the loan with your home, and it has no liens against it.
If you keep your finances in order and make on-time payments, you may qualify before the bankruptcy disappears from your credit reports. Waiting periods and other requirements vary by lender, so rebuilding your credit, reducing your debt, and maintaining sufficient home equity can improve your chances of receiving better rates and terms.
Easily Compare Home Equity Loans for Bad Credit Online
Home equity loans for bad credit may not be as far out of reach as you think. Lenders will look beyond your credit score and consider factors such as your income, debt-to-income ratio, payment history, and the amount of equity you have in your home.
Take the time to compare several lenders before applying. Look at each offer’s annual percentage rate, monthly payment, closing costs, repayment term, and qualification requirements. A lower monthly payment isn’t necessarily the better deal if it comes with a longer term or substantially higher total cost.
Your home’s equity is something to use wisely. You’ve probably spent years building it, and it may be one of the largest assets you’ll ever own. A home equity loan can help pay for improvements or other major expenses, but your house secures the debt.
Borrow only what you need, make sure the payments fit comfortably in your budget, and don’t be afraid to wait if the numbers don’t work in your favor.
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