Every home needs repairs from time to time for problems such as a leaky roof, a failed hot water tank, or outdated electricity. Whether you’re facing damage that needs to be repaired sooner rather than later or you just want to renovate an area of your home, the next question is how to pay for these repairs or improvements. Those who have excellent credit can usually get approved for a home improvement loan without much difficulty, but if your credit is less than perfect, it’s still possible to obtain financing for your home projects. Here’s how to get a home improvement loan with bad credit.
What Credit Score is Required to Get a Home Improvement Loan?
Different lenders have different minimum requirements for a home improvement loan, but most lenders require a minimum credit score of 660. Some lenders approve home equity loans to people whose credit is considered fair, but the interest rate charged will most likely be higher than the rates charged to a borrower with excellent credit.
Your credit score isn’t the only factor considered. Lenders also consider your debt-to-income ratio and how much equity you have in your home. That doesn’t mean you should automatically give up if your credit score is low or if you’ve had credit challenges in the past. If you have bad credit but also have a lot of equity in your home, that may improve your chance of being approved.
Bad Credit Home Equity Loans
Shop around to see what options there are. Some lenders offer home equity loans that are designed for people with bad credit. Before applying for one, it’s important to consider how high the interest rate is. Keep in mind that you’re using the equity in your home to secure the loan, and if you can’t make the payments, you could lose your home. Avoid companies that are willing to provide a home equity loan with no credit check, because they’re likely to charge an extremely high-interest rate.
Alternatives to Home Equity Loans
An alternative to a home equity loan is a cash-out refinance, which is a loan that replaces your mortgage. You’ll owe a higher amount and you’ll get some cash back. This type of loan is usually easier to be approved for than a home equity loan since the lender becomes the first lien holder.
A personal loan is another way you might be able to obtain the money you need for a home improvement loan. Some lenders are willing to approve personal loans for borrowers with bad credit. The interest rate is likely to be higher than a mortgage or home improvement loan, and the interest you pay isn’t tax deductible. Be sure to borrow only what you need.
Improving Your Credit
When you’re considering a home improvement loan, if you don’t have an emergency that has to be dealt with immediately, take some time to work on your credit score by paying payments on time and paying down unsecured debt. Check your credit report to make sure there are no errors. If you find any errors, file a dispute right away.
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