Are you having problems getting loan approval because of poor credit history? Find out how to successfully apply for secured loans for people with bad credit. This is now possible because there are more and more demand for such loans, in view of the high risk of unsecured loans. Lenders are more willing to give secured loans since borrowers are deterred from defaulting, which is why the APR for secured loans is also cheaper. However, if you cannot keep up with monthly payments, your credit score will be greatly affected.
As long as you can offer collateral such as home equity, you will be able to easily get a loan approved even with very bad credit or unemployed. Lenders will usually request for the equity value to be twice as large as your loan, so that after deducting expenses from foreclosure and home auction, they are still able to recover their money. On the other hand, homeowners that put down their home for a loan can lose out pretty badly. That is why very few people default on home equity loans compared to other types of unsecured signature loans, such as a long term installment loan.
Do I Have Sufficient Home Equity For A Loan?
Not all homeowners can apply for a home equity loan. Firstly, you need to have sufficient equity in your property, which is its fair market value minus all existing mortgage and liens. This is the maximum amount that belongs to you, although the actual amount allowed is about 50% to 75&. Lenders will insist on that margin to protect themselves from miscellaneous expenses related to the default and forced home sale process. If you bought your home using 125% home mortgage over the past few years, it is likely that you may not have sufficient equity to tap for a secured loan.
Debt-to-Income Ratio Requirements For Home Equity Loan
Lenders that give secured home equity loans are not too concerned with your credit score, although they do check your credit history, existing debts, income history etc. Unlike what many people suspect, banks have no incentive to foreclose on homes since it generally a lot of negative sentiments, so rest assured that they are not trying to cheat your home through equity loans. You have to demonstrate you have the money or income to pay the monthly installments. Thus, if your debt to income ratio is dangerously high above 40%, you are not likely to get a secured loan using your home. Most legitimate lenders will not allow you to borrow against the value of your home in this case, and some may even suggest you to sell the house to pay off your other loans fast.
Poor Credit Loans If I Have Stable Employment
Your chances to get home equity loans are higher if you have a steady employment history for the past 12 months. Lenders understand that credit rating is a form of lagging indicator and it takes time for good creditability to be acknowledged by the credit agencies. Meanwhile, as long as your income is stable and your debt to income ratio is satisfactory, you can get an equity home loan with poor credit. However, if you only have temporary employment such as probation period or is self-employed with irregular income, a loan broker will be able to provide useful tips on lenders that can help you.
Since every application for a home equity loan will show up on your credit report, avoid doing so since it will drag down your credit score. This means you should not try to apply for 100 loans with bad credit, hoping that you can get lucky. Lenders will view such activities as desperation, and likely that you will face problems with future payments. Just get your latest credit score generated and if it is under 500, fixing it is more important than sending more applications. Furthermore, the consequences of not paying the monthly payments on equity loans can lead to home foreclosure.