A home equity loan is a great option for unlocking large amounts of capital you can put towards everything from debt consolidation to home renovation. However, can you get a home equity loan with bad credit? Keep reading to learn more.
Can You Get a Home Equity Loan with Bad Credit?
You can absolutely get a home equity loan with bad credit. This is because home equity lenders – including us at Alpine Credits traditionally focus on the amount of equity you’ve built up in your property.
Additionally, home equity loans are a type of secured debt. You’re guaranteeing the loan with your home, which gives lenders confidence that you have the resources to make payments.
Not All Lenders Are the Same
While you can certainly get home equity loans for bad credit, this doesn’t apply to all lenders. Traditional lenders (i.e. Canada’s five major banks) have much stricter requirements, including:
- a minimum credit score of 620 (which is considered “fair” by Experian – ”bad” is anything below that)
- a debt-to-income ratio no higher than 35%
- a history of making debt repayments on-time
- stable employment
- at least 15% equity in your home
This is a fairly high bar for many Canadians – especially those with poor credit. As a result, those in need of a home equity loan with poor credit typically turn to more flexible lenders like us at Alpine Credits.
How to Get a Home Equity Loan with Poor Credit
First, let’s look at the process of getting a home equity loan with poor credit from a traditional lender. Then, we’ll show you how much simpler it is to work with Alpine Credits.
Getting a Home Equity Loan with Poor Credit from a Traditional Bank
Step 1: Take a Look at Your Credit Report
Canada’s credit reporting bureaus TransUnion and Equifax are required to give you one free credit report per year. You can use this report to see exactly what information your home equity lender will be evaluating.
In addition to getting a good look at your credit score, you’ll be able to spot and address any potential inaccuracies that may be dragging it down. Both Equifax and TransUnion can help you dispute any such information on your credit report.
Step 2: Look Into Your Debt-to-Income Ratio
Your debt-to-income ratio is one of the most important personal finance metrics when it comes to getting a home equity loan with poor credit. It describes the percentage of your monthly income that goes towards debt repayments.
For example, if you have a monthly income of $10,000 and $5,000 goes towards repaying your mortgage, car payment, and any other debts, you have a debt-to-income ratio of 50%.
In the eyes of a home equity lender, this is too much. Generally, you don’t want your debt-to-income ratio to exceed 35%. Anything higher indicates that a financial emergency could ultimately leave you unable to make repayments.
If you have a higher debt-to-income ratio, you’ll want to work on decreasing it before applying for a home equity loan. However, if you need a loan due to an emergency, this may not be an option. As such, you may prefer to work with a more flexible lender like us at Alpine Credits.
Step 3: Get a Rough Idea of the Equity You Have in Your Home
Home equity is calculated by subtracting any amounts owing on your mortgage from the total value of your home.
Let’s say you have a home worth $500,000, for example. If you have $100,000 remaining on your mortgage, this means you have $400,000 in available equity.
The Financial Consumer Agency of Canada allows you to borrow an amount no greater than 80% of your home’s value against it. As such, you’d be able (at least from the government’s perspective) to borrow the full $400,000 in equity, assuming you had no other liens on the property.
Additionally, remember that traditional home equity lenders often require that you have at least 15% to 20% equity in your home. In other words, on a $500,000 home, you’ll need to have at least $75,000 in equity to qualify for a loan.
Step 4: Apply for Your Home Equity Loan
Your next step will be to apply for a home equity loan at a traditional financial institution. You’ll typically need to have your house appraised, provide income verification, and agree to a credit check.
If you have a credit score below 620, you can essentially bet on your application being denied relatively quickly unless you’re willing to use a co-signer.
Keep in mind, however, that many people are – understandably – reluctant to co-sign on a home equity loan given the massive debt involved, which the co-signer will become responsible for if you ever default. As such, it’s generally not a good idea to use a co-signer for any substantial loan if you have bad credit.
Step 5: Wait Several Business Days for a Decision on Your Application
Depending on the institution you applied for a home equity loan with, a decision can take anywhere from several business days to a week if you have poor credit.
Prior to receiving a decision, it’s possible the bank will get in touch and require additional information about your income and credit history. Any delay involved in getting that information to them can lengthen the entire process considerably.
Step 6: If You’ve Been Denied, Repeat the Entire Process with Another Bank
Unfortunately, it’s very likely you’ll be denied a home equity loan with poor credit from a traditional financial institution. Canadian banks have gotten considerably stricter with their lending criteria, even for secured loans.
Once you’ve been denied, you’ll likely need to take a close look at your credit report again and figure out if whatever spooked the first lender would do the same for others. There’s really only one way to find out, though, which is to apply again.
Getting a Home Equity Loan with Bad Credit from Alpine Credits
Here’s how easy it is to get a home equity loan with poor credit from a more flexible lender like Alpine Credits.
Step 1: Apply Online
Visit this page and fill out our application form. You’ll notice that we don’t ask you for any information regarding your credit history or income. That’s because our primary concern is the amount of equity you have in your home!
Step 2: Receive an Application Decision Within 24 Hours
We strive to issue application decisions within 24 hours. This is a far cry from the several business days traditional lenders often take to review your application.
Additionally, at Alpine Credits, we pride ourselves on being the lender through which Canadian homeowners get approved. Even if your credit history isn’t the greatest, we’ll work with you to find a home equity financing solution that works for you.
Once you’ve received an application decision, one of our agents will be in touch to discuss the next steps regarding your loan.
It’s really that simple! We see no reason to complicate the process of helping you unlock your home equity. After all, it’s your money!
Advantages of Using Home Equity Loans for Bad Credit
There are many advantages to using home equity loans for bad credit. Here are some highlights.
Easier Approval Process
If you have bad credit, your likelihood of qualifying for an unsecured loan is extremely low. Because a home equity loan is secured by a reliable investment – your property – lenders are typically much more flexible.
You Can Borrow More
If you walked into a traditional bank and asked for a $100,000 unsecured personal loan with bad credit, you’d likely be politely escorted out by security. Such a loan is difficult enough to obtain with good credit, let alone with a history of missed payments or excessive debt.
It’s entirely feasible to receive a home equity loan for that amount of money\. As long as you have that amount of equity in your home and it – combined with any other liens you have – doesn’t exceed 80% of your property’s value, you can get approved.
Take Advantage of Rising House Prices Without Selling Your Home
Across Canada, housing valuations have soared in recent years. A home equity loan allows you to take advantage of these record-high valuations without actually selling your home.
A Home Equity Loan is Easier to Manage Than a Home Equity Line of Credit
Home equity lines of credit work much like a credit card, allowing you to continually borrow even as you make repayments. This can be difficult for many people – especially for those with a history of missed payments and poor spending habits – to manage.
A home equity loan, on the other hand, is a lump-sum you can use to cover major expenses. In other words, it’s not revolving, which many people with poor credit find preferable.
Use the Money for Whatever You Want
While traditional lenders will consider the loan’s purpose alongside other factors, at Alpine Credits let you use your home equity for just about anything you need. Our customers have used home equity loans for a variety of things, including:
Contact Alpine Credits to Apply for a Home Equity Loan with Poor Credit Today
If you’re ready to apply for a home equity loan from Alpine Credits, visit this page. For more than 50 years, we’ve been approving Canadian homeowners, regardless of their credit scores. Come see why we’re one of the top-rated home equity lenders in Canada!
Frequently Asked Questions
You can receive a home equity loan with a 500 credit score, although not from a major bank. Institutions like Royal Bank of Canada generally require credit scores of at least 620 for your application to even be considered.
Lenders like Alpine Credits, on the other hand, have greater flexibility with their requirements.
Traditional lenders like Canada’s major banks routinely deny home equity loan applicants with poor credit scores. Getting denied by home equity lenders such as Alpine Credits is much more rare.
In Canada, you can borrow an amount of equity no greater than 80% of your home’s total value.