Home Equity Loans and HELOCs for Bad Credit

If you have bad credit, you might think getting a home equity loan or a home equity line of credit (HELOC) is out of reach. However, you can still tap into your home’s equity, even with a lower credit score. Home equity loans offer a lump sum, while HELOCs let you borrow as needed over a set period, but both options are available to bad-credit borrowers with the right lender.

In this guide, we’ll explore the best home equity loans and HELOCs for people with bad credit and help you find the right option for your financial needs.

Where to get home equity loans for bad credit

Borrowers with bad credit (a FICO credit score between 300 and 579) may have more trouble getting a home equity loan or HELOC than someone with fair credit (580 to 669), good credit (670 to 799), or excellent credit (800 to 850), but it’s not impossible.

There’s no guaranteed home equity loan for bad credit, and the lenders and online lending marketplaces we reviewed below tend to prefer borrowers with at least fair credit scores. But if you have a bad credit score, you can check to see whether you can prequalify with a soft credit check, which doesn’t affect your credit.

Figure 

Best overall

4.9 _/5

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Why it’s a good choice for a bad-credit home equity loan

Figure revolutionized the HELOC experience by offering a 100% digital application process, quick approval, and funding in as little as five days. This efficiency is a game-changer for homeowners seeking quick access to funds.

But it’s not just fast; this process also cuts many of the traditional costs associated with getting a HELOC. This is crucial to borrowers with bad credit, who may not be able to afford typical HELOC fees. Plus, Figure lets you see whether you’re prequalified without a hard credit check that could lower your score.

Figure’s fixed-rate HELOC is similar to a traditional home equity loan because it offers the stability of a fixed interest rate, and you get a lump sum of 100% of the credit line at origination. However, it also has a significant advantage over a typical home equity loan: As you repay the balance, you can redraw funds up to your original credit limit, providing ongoing access to cash without applying for a new loan.

• Prequalify with no credit impact
• 100% online application with funding in as few as 5 days
• Borrow up to $400,000 with the option to redraw

• Requires initial minimum draw of 100% of credit line (minus fees)
• 640 minimum credit requirement, so not available to borrowers with the true definition of bad credit

Rates (APR)	6.55% – 15.54%
Loan amounts	$15,000 – $400,000
Min. credit score	640
Max. LTV	85%
Fees	Origination fee (1.50% – 4.99% where allowed)
State availability	45, D.C. (All except DE, HI, KY, NY, & WV)

Aven

Best customer reviews

4.8 _/5

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Why it’s a good choice for a bad-credit home equity loan

Aven now offers a traditional home equity line of credit (previously, the company was known only for its HELOC credit card). The HELOC—known as AvenCash—could appeal to borrowers working to grow or repair their credit because no hard credit check is required to qualify.

Aven is fast, with approval in 15 minutes, and offers a lowest rate guarantee. If you qualify for a HELOC with a different lender at a lower rate, Aven will beat it and send you $100. Plus, Aven lets you opt in to debt protection in case of unemployment during your home equity loan repayment (for a fee) and offers automatic line of credit increases over time if you’re responsibly managing the HELOC.

Similar to Figure, Aven’s HELOC is similar to a home equity loan in two significant ways: It has a fixed rate, and you must withdraw the full credit line at origination.

• Lowest rate guarantee
• Automatic line of credit increases
• Borrow up to $400,000 with the option to redraw

• Requires initial minimum draw of 100% of credit line (minus fees)
• 640 minimum credit requirement, so not available to borrowers with the true definition of bad credit

Rates (APR)	6.99% – 15.49%
Loan amounts	$5,000 – $400,000
Min. credit score	640
Max. LTV	89%
Fees	4.90% first-draw fee (like an origination fee; not charged if homeowner never connects bank account)
State availability	32 states (AL, AK, AZ, AR, CA, CO, FL, IA, IL, KS, KY, LA, ME, MI, MN, MS, NE, NH, NJ, NM, NC, ND, OH, OK, OR, PA, SD, TN, UT, VA, WI, & WY)

LendingTree

Best marketplace

4.5 _/5

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Why it’s a good choice for a bad-credit home equity loan

LendingTree distinguishes itself in the home equity loan and HELOC market by offering a wide-ranging platform that connects borrowers with multiple lenders. This is ideal for borrowers with bad credit because you can filter results to only those you qualify for.

LendingTree’s user-friendly interface and comprehensive educational resources further enhance the experience, breaking down the complexities of home equity products.

The platform’s strength is its ability to cater to a diverse range of borrower profiles, including those with varying credit scores and home equity levels. By providing access to a multitude of lenders, LendingTree ensures its users can secure the most competitive rates, making it an outstanding choice for those looking to leverage their home equity.

• Large network of partner lenders
• Apply for a home equity loan or HELOC from all of LendingTree’s partners without hurting your credit
• Certain partners may accept bad credit scores

• Offers are limited to LendingTree partners, so you won’t see all the potential lenders you qualify for
• Minimum credit score of 620 is generally needed

Rates (APR)	Vary by lender
Loan amounts	Vary by lender
Min. credit score	620
State availability	All 50 states, D.C.

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Best home equity loans

Can you get a home equity loan with bad credit?

You are unlikely to get approved for a home equity loan with bad credit. The typical minimum credit score requirement for a home equity loan is 620. However, other home equity requirements lenders consider include:

• Debt-to-income ratio: Many lenders won’t approve a loan if this exceeds 43%.
• The equity you have in your home: At least 15% equity is ideal, but if you’ve built more equity, that can improve your chances.
• Monthly income: Lenders generally want to see that your monthly income has been stable for at least a year.

A home equity loan is a second lien, so if you were to default on your loan, your primary mortgage lender would get the property first. If there’s not enough money recovered, your second lienholder might not get repaid—which presents a big risk to home equity loan and HELOC lenders. 

Home equity lenders often have strict credit score requirements to lower their risk; generally, the lowest they will accept is 620. While this doesn’t make getting a home equity loan with bad credit impossible, it can make it more difficult. Your approval will hinge on how well you meet the lender’s other requirements. 

Can you get a HELOC with bad credit?

Getting a home equity line of credit with bad credit is also difficult. Home equity loans and HELOCs tend to have similar requirements, though many lenders have stricter credit score requirements for HELOCs.

While home equity loans often require a 620 credit score, many HELOC lenders bottom out at 640. Otherwise, HELOCs have similar requirements:

• Debt-to-income ratio of 43% or less
• At least 15% to 20% equity in your home

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Best HELOCs

Is a home equity loan or HELOC better for bad credit?

Home equity loans and HELOCs are designed for borrowers with good or excellent credit. Fair-credit borrowers may be able to qualify for a home equity loan or line of credit, but these products aren’t designed for borrowers with FICO scores below 579.

Home equity loans may be slightly easier to qualify for. Some lenders will approve applicants with credit scores as low as 620; HELOC lenders typically require a score of 640 or higher.

Our expert’s recommendation: HELOC vs. home equity loan

Eric Kirste

CFP®

I would ask the borrower to look at considerations that will best meet their borrowing needs. One, do you want a fixed or adjustable interest rate? Two, do you need a one-time amount for a specific project or need the funds flexible for ongoing borrowing needs? Three, do you want fixed payments over a certain period, or are you able to work with irregular payments over a longer period? How finite do you want the payment structure to be?

How to improve your approval odds for a home equity loan with bad credit

Your credit score, debt-to-income ratio, and equity in your home are all metrics lenders use to determine whether you qualify for a home equity loan or HELOC. By focusing on all three, you can improve your approval odds of a home equity loan.

1. Improve your credit score

Some lenders will approve your application with a credit score as low as 620, but most lenders want to see a higher score. And if you’re approved with a low score, you’ll pay higher interest rates and have a higher monthly payment.

You can improve your score by:

• Reviewing your credit report: Check your credit report from all three major credit bureaus and dispute any errors you see on the reports.
• Paying bills on time: Making monthly credit card and mortgage payments on time and in full establishes that you’re a responsible borrower. Your score should improve over time as long as you keep up with on-time payments.
• Reducing your credit utilization: Pay down your debts, particularly high-interest credit card debt, and only use a credit card if you can pay it off in full each month.

2. Reduce your debt-to-income ratio

Your debt-to-income ratio (DTI) is the sum of all your monthly obligations divided by your gross monthly income. If it’s higher than 43%, it can be a sign you’re living above your means and may be at risk of defaulting on your loans. 

To lower your DTI, increase your income or reduce your debt. You can take on side gigs to make extra money, ask for a raise at work, or pay down your credit cards and stop swiping them for new purchases.

By bringing in more money, you can increase your income and make extra debt payments to double your efforts. 

3. Build equity in your home

You need equity in your home to borrow against it.

If you can afford more than your monthly payment on your mortgage or on a biweekly schedule, you can pay down your balance faster and build more equity.

If your home was appraised several years ago, you can also get another appraisal. If the value comes back as $350,000, but the last appraisal was $300,000, you just gained $50,000 in equity. We only recommend this if home values have increased since your last appraisal. 

4. Consider a cosigner

A cosigner is an individual who also agrees to secure your new loan. This cosigner shares the obligation to repay your debt and can be held responsible if you default on the loan. 

Lenders will consider your cosigner’s credit history and income when you apply for your home equity loan. Adding them could be the key to getting your application approved if they are creditworthy. 

Tip

The loan balance and payment history are reported on your cosigner’s credit. If you make late payments or default, it affects their credit, and lenders will hold them responsible for any remaining debt.

5. Let your spouse apply alone

Even if you and a spouse are both named on a mortgage, you may not need to apply for the loan in both of your names (though you still may need their consent, depending on state laws). Because a bad credit score can hurt your chances of getting approved, you may be better off letting your spouse apply alone if their credit score is stronger.

Here are lenders that you let apply for a home equity loan without a spouse.

How bad credit affects the cost of borrowing

Because the loan interest rate is a measure of loan risk, borrowers with bad credit should expect to pay more than the advertised home equity rate. This can increase loan costs. For example, say you’re borrowing $10,000 for 10 years.  

Credit profile	Rate & monthly payments	Total interest
Good	6%, $111	$3,322
Bad	12%, $143	$7,217

As you can see, high-interest loans will result in higher monthly payments and more interest paid than if you had good credit. Because home equity loan interest rates vary by lender, shop for the lowest interest rate.

How to apply for a home equity loan or HELOC with bad credit

If you’re a homeowner with bad credit and want to take out a home equity loan or HELOC, here are the steps you should take to apply. This process is similar to applying for other types of mortgages. 

Step 1: Determine how much you can borrow

The amount you can borrow with a home equity loan or HELOC is limited to a portion of your equity in your home. To calculate this, determine your home value and subtract your mortgage loan balance. 

If your home is worth $400,000, and you owe your lender $110,000, you have $290,000 in equity. This is your loan-to-value ratio (LTV). But you can’t borrow 100% of your equity; instead, lenders mitigate their risk by only allowing you to borrow against a certain percentage.

Combined loan-to-value (CLTV) is the ratio comparing all liens on your property against its market value. Each lender has its own CLTV limit, but 75% to 80% is common. You could borrow up to $210,000 against your property if your lender’s CLTV limit is 80%.

$400,000 x 0.80 = $320,000 CLTV limit – $110,000 current mortgage = $210,000

Step 2: Gather information on your current mortgage

When applying for a home equity loan or line of credit, your potential lender will request details on your mortgage. Gather this documentation beforehand to streamline the process and move your application along faster.

This might include providing your most recent mortgage statement and a current payoff quote. 

Step 3: Make your case with a letter 

Consider a proactive approach when applying for a home equity loan as a bad-credit borrower. This could mean drafting a letter for potential lenders beforehand explaining your situation.

For example, if you have bad credit due to a divorce or serious illness, explain that. You may also want to provide documentation to serve as a further explanation. This could include bankruptcy filing papers, divorce decrees, and more.

Step 4: Prequalify with multiple lenders

Any time you’re looking for a new loan, it’s smart to shop around. This can help ensure that you have the best chance at approval and are likely to qualify for the best possible rates and loan terms.

Shopping around with multiple lenders will give you options, and many let you prequalify online with no impact on your credit score. Just look for lenders advertising prequalification or quotes with a soft credit pull.

You can then compare rates, fees, repayment terms, and loan limits to decide which offers the most attractive deal overall.

Step 5: Move forward with your application

Once you’ve selected a lender, it’s time to apply. You’ll need to provide the lender with the necessary documentation and information to process your application. This could mean copies of your recent pay stubs or W-2s, past tax returns, current mortgage statements, bank statements, copies of your identification, and more.

How does repaying your home equity loan affect your credit?

Home equity loans and HELOCs have the potential to improve or harm your credit. Here are the ways home equity loans can improve your credit score:

• On-time payments: Making on-time payments every month establishes responsible credit usage, which can improve your credit score over time.
• Credit mix: A home equity loan diversifies the types of loans in your credit portfolio. You can expect your score to improve if you manage it responsibly.

However, home equity loans can hurt your credit if you’re late with any payments. Even a single missed or late payment can cause your score to drop.

Pros and cons of getting a home equity loan with bad credit

Getting a home equity loan with bad credit can have several advantages, but consider the drawbacks, too.

Pros

• Lower rates than other options

  Home equity loans and lines of credit allow you to access cash for medical emergencies, debt consolidation, home renovations, and other needs without using a high-interest credit card or personal loan.

• Chance to build credit

  Responsible management of a home equity loan or HELOC can help improve your credit score over time, meaning you’ll qualify for better loan rates and terms in the future.

Cons

• High risk

  Your equity in your home secures home equity loans. If you default on your loan’s repayment, you risk the foreclosure of your home. Your credit will be harmed further, and you could lose the roof over your head.

• Closing costs

  Home equity loans often have closing costs, including appraisal and origination fees. If you’re already strapped for cash with bad credit, this might be too expensive for you.

• Higher rates with bad credit

  While interest rates for home equity loans and HELOCs tend to be lower than credit cards and personal loans, they still depend on your credit score. With a lower credit score, you’ll pay more in interest over the life of the loan.

Alternatives to home equity loans

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 loan or HELOC	Homeowners with decent equity in their homes
Personal loan	Borrowers with no equity in their home (or who don’t own a home)
Cash-out refinance	Borrowers who can qualify for a lower interest rate on their mortgage
Reverse mortgage	Seniors with high costs in retirement

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 typically 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. 

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.

FAQ

Can you get a home equity loan with no credit check?

Getting a home equity loan without a credit check is unlikely. Lenders typically use credit checks to assess your ability to repay the loan, which is critical when lending money secured by your home. Some alternative lenders or specialized programs might offer loans with minimal credit checks, but these often come with higher interest rates and less favorable terms.

Can I get an FHA home equity loan with bad credit?

FHA doesn’t offer traditional home equity loans, but you might qualify for an FHA cash-out refinance or FHA home equity conversion mortgage (HECM) if you are 62 or older. These FHA-backed options are generally more accessible to those with bad credit, though you still must meet minimum credit score requirements and other eligibility criteria. Lenders offering these products usually look for a credit score of at least 500, but higher scores improve your chances of approval and better terms.

Can I get a home equity loan with bad credit if my home is paid off?

Yes, if your home is paid off, you might qualify for a home equity loan even with bad credit. However, your credit score will influence your interest rate and terms. Some lenders may be more willing to approve a loan because the home serves as collateral, but you may face higher interest rates or additional fees due to the perceived risk.

What types of loans can I get using my house as collateral with bad credit?

Even with bad credit, you can use your home as collateral to access different types of loans. Options include a home equity loan, which provides a lump sum with fixed payments, or HELOC, which allows you to draw from a revolving credit line. Both may come with higher interest rates and stricter terms due to your credit score.

Other alternatives are a cash-out refinance, where you refinance your mortgage for a larger amount and get the difference in cash, and a reverse mortgage, available to those 62 or older, which converts home equity into cash without requiring monthly payments. Each option has unique requirements, so comparing lenders and terms is essential to finding the best fit for your needs.

How we selected bad-credit home equity loans

Since 2018, LendEDU has evaluated home equity companies to help readers find the best home equity loans and HELOCs. Our latest analysis reviewed 850 data points from 34 lenders and financial institutions, with 25 data points collected from each. This information is gathered from company websites, online applications, public disclosures, customer reviews, and direct communication with company representatives.

These star ratings help us determine which companies are best for different situations. We don’t believe two companies can be the best for the same purpose, so we only show each best-for designation once.

Recap of the best bad-credit home equity loans