How to get a home equity line when you have bad credit

A home equity line (or HELOC) can be very beneficial for those borrowers who need some cash and have equity in their home. It’s typically  a win-win for both borrower and lender. The lender benefits because the borrower has their house and property offered as collateral, which is the ultimate form of insurance on paying the debt, since nobody wants to lose a home to foreclosure. But the borrower has more leverage in being approved for this loan because they’re putting up collateral. So it’s a safer bet for the lenders, and homeowners could have access to needed cash faster than a traditional loan. 

But what if you don’t have great credit? 

The usual requirements for garnering a home equity line involve some basic qualifications. Borrowers need to have a debt-to-income ratio (DTI) of usually 43 or lower. The lower the DTI, the lower the interest rates will be for the borrower. There are some lenders who approve borrowers with higher than 43 on the DTI scale.  

As with all loans, FICO scores are part of the loan underwriting process. For a home equity line, lenders usually want a FICO score of at least 620 or better. But it’s dependent on the lenders and what they look for. Some lenders accept lower FICO scores, but the interest rates on those approvals will typically be higher.

Bottom line: you can still get a HELOC with less than ideal credit

All is not lost if your numbers don’t meet the standard criteria of a Home Equity Line. There are lenders out there who specialize in these circumstances and offer non-prime home equity loans. These lenders are subject to oversight by the Consumer Finance Protection Bureau (CFPB). These loans are ideal for those borrowers who want a Home Equity Line but only have a FICO score between 500 and 620.