Erinn Dimond, WalletHub Writer
@Erinn.dimond
Yes, you can get a loan using your house as collateral even if you have bad credit. Home equity loans allow you to use the amount of your home that you own as collateral, which reduces the risk for the issuer and makes it possible to get approved despite a dicey track record as a borrower.
You’ll have the best chances of approval for a home equity loan with bad credit if you apply with a cosigner or coborrower who has a good credit score and sufficient income to repay the loan. But it’s possible to get approved on your own, especially if you have low debt-to-income (DTI) and loan-to-value (LTV) ratios.
How to Borrow Money Using Your House as Collateral
- Home equity loan: A home equity loan allows you to borrow a lump sum of money using the equity you’ve built up in your home as collateral. You can calculate your home equity by subtracting your mortgage balance from the appraised value of your home. You can apply for a home equity loan with a cosigner or coborrower to help your odds of approval.
- Personal loan: Some personal loan providers may allow you to use your home as collateral for the loan, which will reduce the risk for the lender and potentially get you a competitive interest rate. Some personal loan providers accept applicants with bad credit, and many lenders allow you to apply with a cosigner or coborrower to increase your chances of approval.
- Home equity line of credit (HELOC): A HELOC is a revolving line of credit secured by the equity in your home. HELOCs are not loans, but they allow you to borrow money up to a predetermined credit limit, similar to a credit card. You can also apply for a HELOC with a cosigner or coborrower.
The downside to using your house as collateral for a loan is that you risk losing the house if you can’t keep up with the payments. Instead, consider getting a personal loan from a lender with low or no credit requirements. This will allow you to get an unsecured loan with bad credit, but keep in mind that unsecured loans typically have higher interest rates than secured loans.
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