A home equity loan is a type of consumer debt that allows you to borrow against the equity you’ve built in your home. In this context, equity refers to the current market value of your home minus the amount due on your mortgage.
If your application for a home equity loan is approved, you’ll receive the loan amount as a lump sum. These loans usually have a fixed interest rate and a shorter repayment term than a first mortgage.
Since these loans use the equity in your home as collateral, the lender could potentially foreclose on your home if you’re unable to repay the loan (including interest).
Usually, you’d need a good credit score to be approved for a home equity loan from a traditional lender. However, there are some ways to access a home equity loan with a 500 credit score if you know which lenders and loan programs to pursue.
Getting a home equity loan with a low credit score of 500 points can be challenging but possible. For example, Top Flite Financial is a mortgage lender with relaxed credit guidelines, meaning they will consider applicants with a 500 credit score. They offer both mortgage refinancing options and purchase mortgage loans. Helping you through the loan process, they can close loans within weeks rather than months like other lenders.
If you have a 500 credit score and are looking to take cash out of your mortgage, answer a few questions online to contact a mortgage expert from Top Flite Financial and review your options with them.
Getting approved for a home equity loan with a low 500 credit score can seem daunting Most lenders prefer scores of 620 or higher But it is possible if you meet other requirements around income, equity and debt levels. Here are some tips to boost your chances of qualifying for a home equity loan, even with a 500 credit score.
What Credit Score Do You Need for a Home Equity Loan?
FICO credit scores range from 300 to 850. The higher the score the better. Here’s how scores break down
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Excellent
For home equity loans, many lenders look for scores in the 620-680 range or higher. Some may approve borrowers with scores as low as 580. But it’s rare to get approved with a score below 600.
With a 500 credit score, you’re considered a subprime borrower. Subprime loans generally have higher interest rates and stricter requirements. But some lenders specialize in subprime home equity lending.
How to Improve Your Chances with a 500 Credit Score
Here are some tips to boost your odds of getting a home equity loan with a 500 credit score:
-
Apply for a small loan amount. Lenders view small loans as less risky. Ask for 10-20% of your available equity rather than the maximum.
-
Have substantial equity Most lenders require 15-20% equity Having twice that (40%) looks better with poor credit,
-
Lower your DTI. Get your debt-to-income ratio below 36% by paying down debts. Lenders may deny you if your DTI is over 43%.
-
Add a cosigner. Ask someone with good credit to co-sign your loan application. This gives you a better chance of approval.
-
Apply with your current lender. Banks often extend more flexibility to existing customers. Leverage your relationship.
-
Explain credit issues. Write a letter detailing reasons for your low score. Medical bills or job loss beyond your control may help your case.
Requirements to Qualify with a 500 Credit Score
Along with your credit score, lenders look at other factors like your income, debts, and equity. Here are typical requirements:
-
Credit Score: 500+ (subprime)
-
Down payment: 20% or more
-
Debt-to-Income Ratio: Below 36% ideal; up to 43% possible
-
Equity: At least 25%
-
Employment: 2 years minimum with current employer
-
Mortgage payment history: Perfect track record of on-time payments
Meeting these guidelines in addition to having a 500 credit score can demonstrate you’re still a reasonably safe bet for the lender.
Compare Home Equity Lenders for a 500 Credit Score
Shop around with different home equity lenders to compare interest rates and fees. Here are a few lenders known to work with 500 credit scores:
Lender
|
Credit Score Requirement
|
Max DTI
|
Max CLTV
|
Interest Rates
What is a Home Equity Loan?
As discussed earlier in this article, a home equity loan is a type of consumer debt allowing homeowners to borrow a certain amount of money against the equity they’ve built in their homes. Typically, the loan amount depends on the current market value of the home being used as collateral minus the balance still due on the original mortgage. To get approved for such a loan, you may need to pay a variety of fees and upfront costs, such as an appraisal fee, stamp duties, title fee, and closing fees.
Can You Get a Home Equity Loan with 500 Credit Score?
Getting a home equity loan with a 500 credit score will not be easy, as most conventional lenders will require a credit score of 620 or above to even consider your loan application. There are, however, a few ways you can increase your chances of qualifying for a home equity loan with bad credit. Some of these are as follows:
If you’re finding it hard to qualify for a home equity loan with a 500 credit score, you could consider getting a co-signer. The co-signer could be a parent, a spouse, a sibling, or any other person who, on paper, would be just as responsible for repaying the loan as you are. Hence, if you don’t make payments on time, their credit will suffer along with yours.
Having a co-signer will strengthen your application and improve your chances of being approved for the home equity loan. Lenders will have more confidence that the co-signer will repay the loan even if the primary borrower falls behind on payments.
Is it Hard to get a HELOC? – Minimum Requirements and How to Get Approved
FAQ
Can you get a home equity loan with a 500 credit score?
Can you get a home loan with a credit score of 500?
Can I get a HELOC with a 520 credit score?
What is the minimum credit score for a home equity loan?
Can you get a home equity loan with bad credit?
It’s possible to get a home equity loan with a fair credit score, defined as a FICO score between 580 and 669. You won’t get the lowest interest rate, however, if your score isn’t as high. If you have steady income and an existing relationship with a lender, you might have a better chance at getting a home equity loan with bad credit.
Can I get a home equity loan with a subprime credit score?
But you still have options if you’re looking for home equity loans and have a subprime credit score. Some lenders cater to borrowers with fair or bad credit and may focus on other factors, such as your debt-to-income ratio (DTI), when determining your creditworthiness.
Can a low credit score get a home equity loan?
A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Many home equity lenders allow for FICO scores as low as 620, considered “fair,” as long as you meet other requirements around debt, equity and income. Not all home equity lenders have the same borrowing criteria. The general requirements include:
What is a good credit score for a home equity loan?
That means that your credit score is one of the deciding factors between approval and denial. Home equity loans allow homeowners to borrow cash against their equity. Lenders generally want a credit score of at least 700. Interest rates are better for borrowers who have higher credit scores. What Is a Home Equity Loan?