If you are applying for a home loan and you have good credit history, then the process of getting your loan approved can be easy on your part.
However, if you have bad credit, this can be a different story. Getting a home equity loan with bad credit can be tough if you do not know how to go about it properly.
The first thing to understand here is that you cannot turn to the primary lending institutions for help. Your poor credit history will just prod them to impose high interest rates and fees for your loan. And that is, if they do decide to approve your loan application in the first place.
These primary lending institutions include banks and mortgage companies. The best option here is then to turn to subprime lenders. These are the lenders that focus on loans that involve high risks. Since you have bad credit history laden with missed payments, then you are indeed one of the high risks in the industry.
Of course, this would bring a negative impact on your self-esteem. Bad credit history comes with a negative stigma and there is nothing you can do about it at all. Still, you should not be ashamed when you are taking out a home equity loan, even if you have bad credit.
This is because with a home equity loan, you are just using money that is tied up in your own house or property. This is still your money, and you are entitled to use it to serve whatever purpose. Home equity is actually the difference between the appraisal of your property and the current balance of your mortgage.
For example, your house is currently appraised at $200,000 and the current balance of your mortgage is $80,000. This means your home equity amounts to $120,000. With the approval of your home equity loan application, you can then use the extra $120,000 for whatever purpose.
Most of the time, home equity loans are taken out so that other debts can be paid off. The money can be used for home improvement as well.
One drawback about getting a home equity loan with bad credit is that the interest rates would be a bit higher. This is still due to the fact that you have bad credit history, and you did miss out on your payments previously.
This is why you should shop around for sub prime lenders before you settle on one particular lender. This way, you can weigh the offers, quotes, terms, and conditions given by these lenders. You can then find the lender with the best possible offer for you.