How to Get a Home Equity Loan With Bad Credit: The Complete 2025 Guide

A home equity loan can help you cross some financial goals off your list, but a low credit score could add a wrinkle to your plans. It’s possible to get a home equity loan with bad credit, and pinning down the right lender is key to keeping the cost to a minimum.

Learn what it takes to get a bad credit home equity loan, step by step.

Table of Contents

1. Can you get a home equity loan with bad credit?
   1. Requirements
2. How to apply
   1. 1. Check your credit reports and scores
   2. 2. Calculate your equity
   3. 3. Assess your income and debt
   4. 4. Talk to your bank or credit union
   5. 5. Get rate quotes
   6. 6. Consider a cosigned loan
   7. 7. Wait to apply (until your score improves)
3. Best home equity loan lenders for bad credit
4. What to do if you get denied
5. Alternatives

Can you get a home equity loan with bad credit?

Yes, you can get a home equity loan with bad credit. The minimum credit score to get a home equity loan varies, and isn’t set in stone. Lenders can and do offer home equity loans to people with less-than-perfect credit scores when they meet other requirements.

What is a “bad credit score”? Here’s how credit scores are rated, according to FICO.

FICO score range	Credit rating	What it means
<580	Poor	Lenders may see you as higher risk and it could be difficult to get approved for a loan.
580-669	Fair	Your score is below average, but you could still get approved for loans.
670-739	Good	Your score puts you in the average range.
740-799	Very Good	You’re above average, compared to other credit scores.
800+	Exceptional	You’re an exceptional borrower in the eyes of lenders.

If your score is in the fair range, you might think a home equity loan is out of reach, but you could be wrong. Lenders consider your overall financial picture, not just your credit score, when deciding whether to approve you for a HELOC.

Home equity loan requirements you need to know

Home equity loan requirements vary by lender, but in most cases, it comes down to the same set of factors. Here’s what lenders consider when approving loans.

• Credit scores. Your credit score tells lenders how likely you are to repay what you borrow. Bad credit doesn’t count you out completely, but it may narrow your loan options and/or result in a higher interest rate.
• Income. Lenders want to see that you have a reliable income to repay a home equity loan. Your income also factors into the next criteria for approval.
• DTI. DTI, or debt-to-income ratio, measures how much of your gross pay goes to debt repayment each month. A high DTI could work against you for home equity loan approval, regardless of your credit scores.
• Equity. You’ll need to have some equity in your home to get a home equity loan. Typically, lenders look for 15% to 20% equity.

Credit scores matter for approval, but they also impact the cost of a home equity loan. A lower credit score can translate to a higher interest rate, which can add thousands to your total cost of borrowing over time.

Take, for example, two loan scenarios:

• Loan A: You have a 660 FICO score and want to get a $50,000 home equity loan. You’re approved for that amount, with a 10-year term at 14%.
• Loan B: You have a 680 credit score and qualify for a 9% rate.

Here’s what you’ll pay for each home equity loan:

Payment details	Loan A (660 score, 14%)	Loan B (680 score, 9%)
Monthly payment	$763	$633
Total interest	$43,160	$26,005

That’s a significant difference in cost, illustrating why good credit makes a difference when you want to borrow.

How to apply for a home equity loan with bad credit

Home equity loans for bad credit are out there; you just have to find the lender you have the best chance of qualifying with. Here’s how to get a home equity loan or HELOC with bad credit, step by step.

1. Check your credit reports and scores

Checking your credit scores can give you an idea of how likely you are to be approved for a home equity loan. You may also gain insight into things you could do to boost your score before you apply. 

For example, say you have a 660 FICO score, which is fair credit. If you were to pay down some of your credit card debt or increase the limits on your cards (but not the balances), you could improve your credit utilization ratio. That might add enough points to your score to push you into good credit territory.

2. Calculate your equity

It helps to know how much equity you have in your home before applying for a loan. To find your equity, use this formula:

Current market value – Outstanding mortgage balance = Home equity

You can find your outstanding mortgage balance on your most recent mortgage statement. You can get an estimate of market value on sites like Zillow or Redfin, but you’ll need a professional appraisal to get the most accurate number.

3. Assess your income and debt

Calculating your DTI ratio is another useful step in applying for a home equity loan with bad credit. Here’s how to find your DTI:

• Add up your total monthly debt payments
• Divide that number by your gross monthly income
• Multiply the result by 100

So, if your total debt payments are $1,500 and your gross pay is $5,000, your DTI would be 30%. 

What is a good DTI for a home equity loan? It’s lender specific and a general range is anywhere from 36% to 50%, which includes your mortgage debt. As a rule of thumb, the lower you can get this ratio, the better your chances for a home equity loan approval.

4. Talk to your bank or credit union

It might be easier to get a home equity loan through your bank or credit union if you have a positive banking history. Consider talking to a mortgage lender about what you might qualify for, based on your income, credit scores, debt, and equity. 

Working with your current bank has another advantage. You may qualify for relationship rates or other rate discounts, which could save you money on a home equity loan. 

5. Get rate quotes

Comparing home equity loan rates and terms can help you see what you might pay with different lenders. Generally, it’s a good idea to get at least three quotes so you have something to compare. 

Use the same details when requesting quotes, including the amount you want to borrow, your estimated credit scores and income, and your home equity. That ensures you’re making apples-to-apples comparisons. 

6. Consider a cosigned loan

A cosigner applies for a loan with you, and if approved, they share legal responsibility for the debt. The advantage of having someone cosign a home equity loan with you is that it may be easier to get approved if they have a solid credit score. 

You could also secure a lower interest rate if your cosigner has good or excellent credit. Keep in mind, however, that if you default on the loan for any reason, both of you will be on the hook for the debt. 

7. Wait to apply (until your score improves)

Unless you need to borrow for a financial emergency, you could just wait to apply for a home equity loan until your score improves. While you’re waiting, you can focus on practices that can help your score, like:

• Paying bills on time
• Keeping credit card balances low
• Not applying for new credit unless you truly need to
• Keeping old accounts open

Waiting could also be a good strategy if you expect home equity loan rates to eventually drop. A higher credit score paired with lower home equity rates could help you get the best deal in the end.

The first thing I discuss with my clients when they are considering a home equity loan is the purpose of the loan: Is it for an essential purpose? Having a stable source of income is critical to ensuring repayment and can even provide the borrower an opportunity to improve their credit over time. However, if my client lacks steady income or has minimal equity in their home, I view taking out a home equity loan as too risky, since it could put their home at risk.

Best home equity loan lenders for bad credit

Finding lenders and banks that give home equity loans with bad credit takes some research. To make the task easier, we’ve compiled a list of the best bad credit home equity loan options available now.

What to do if you get denied

You’ve done everything right by checking your credit, comparing lenders, and building a strong financial profile, but your home equity loan application is denied. That can happen if lenders feel your application is not strong enough. Here are some of the most common reasons to be turned down for a home equity loan.

• Insufficient income. A lender could say no to a home equity loan if you don’t meet minimum income requirements. There’s no set number you need to aim for, but your pay needs to be steady and consistent.
• Too little equity. Most lenders expect you to have a minimum amount of equity in your home. If the gap between what you owe and your home’s value isn’t wide enough, you could be denied.
• Too much debt. A too-high DTI, usually anything above 45% to 50%, could get you denied. Lenders may worry that you won’t have extra money in your budget to cover your home equity loan payments after paying other debts.
• Low credit scores. Most lenders have a minimum credit score they look for. If your score is under the threshold, you may be unable to get a home equity loan until your credit improves.

If you’re denied for a home equity loan, focus on what you can do to regroup and move forward. That might include:

• Improving your credit scores
• Chipping away at credit card debt
• Paying extra toward your mortgage principal
• Increasing income with side hustles or a part-time job

You could also try making small repairs or improvements that add a little to your home’s value. Adding a little curb appeal, patching up a leaky roof, or giving the kitchen a fresh coat of paint may not take much money but it could increase what your home is worth and give your equity a bump.

Finally, you might consider home equity loan alternatives for bad credit if you need to borrow.

I only recommend borrowing with a low credit score if the financing is essential and the benefits clearly outweigh the costs. My priority is making sure the loan will leave my client in a stronger financial position in the end, not add to their burden.

Alternatives to home equity loans for low credit scores

You may find yourself in a position where you need cash but can’t qualify for a home equity loan. Consider these options.

Option	Best for
Home equity agreement	Homeowners with bad credit who want to access equity without monthly payments or interest
Home sale-leaseback	Homeowners who need immediate equity access but want to continue living in their home
Personal loan	Borrowers with no equity in their home
Cash-out refinance	Borrowers who can qualify for a lower interest rate on their mortgage
Reverse mortgage	Seniors with high costs in retirement
Retirement loan	Borrowers with a 401(k) or similar account who need short-term funds but can repay quickly.

Home equity agreement

With a home equity agreement, you get a lump sum in exchange for a percentage of your home’s future appreciation. Unlike a traditional loan, you won’t owe monthly payments or interest charges. This can be an option for borrowers who lack the credit profile for a loan but have significant equity.

Check out our list of the best home equity agreement companies.

Home sale-leaseback

In a sale-leaseback, you sell your home to a buyer or investor and then lease it back, allowing you to access your equity while continuing to live in the property. This option is often a short-term financial solution but requires careful consideration of lease terms and future plans.

See our list of the top home sale-leaseback providers.

Personal loan

You can get unsecured personal loans from various lenders, some of which will lend to borrowers with poor credit. Lenders have unique approval criteria, but you can compare requirements for bad-credit loans here to find an option that works for you.

Personal loans tend to have higher interest loans than home equity products, but you don’t use your home as collateral, so you aren’t putting your home at risk.

Cash-out refinance

When you take a cash-out refinance, you refinance your first mortgage and borrow more than you owe. You take out the difference in cash to use for whatever you need. In some cases, you can lower your interest rate too, saving money on loan costs. 

View our list of the best cash-out refinance lenders.

Reverse mortgage

A reverse mortgage provides homeowners over age 62 with a lump-sum payout against the equity in their property. The difference is that reverse mortgage borrowers aren’t required to make monthly payments on that loan. Instead, the debt is repaid once the borrower no longer lives in the home.

Interest charges accumulate on the reverse mortgage loan, but you don’t need to worry about paying them monthly. If you have bad credit, this option can be more attractive because your credit score won’t result in a higher monthly payment requirement.

Reverse mortgages push the cost into the future. You or your heirs must repay the debt if you move or pass your home to them. See the highest-rated reverse mortgage companies.

Retirement loan

Some people borrow against 401(k) plans or other retirement accounts, but this can come with penalties and affect long-term financial goals.