How To Get a Home Equity Loan With Bad Credit?

If you’re sitting on home equity but haunted by a low credit score, you’re not alone, and you’re not out of options.

This could be a serious lifeline if you’re dealing with debt, major expenses, or just need a financial reset. But here’s the catch: qualifying for a home equity loan with bad credit means jumping through a few more hoops. Still, it’s doable—and this guide walks you through every step.

Let’s sort through the confusion and help you tap into your home’s equity—even with a bruised credit report.

Key Takeaways:

• Yes, you can get a home equity loan with bad credit—but it takes strategy.
• Lenders weigh more than your credit score, like DTI, LTV, and income stability.
• Explore alternatives like HELOCs, cash-out refinancing, or co-borrowers.

What is a Home Equity Loan?

A Home Equity Loan is a second mortgage that allows you to borrow against the value you’ve built up in your home. You receive a lump sum and repay it over time with fixed monthly payments.

Key Terms Simplified:

• LTV (Loan-to-Value): How much you owe vs. your home's value.
• DTI (Debt-to-Income): What percent of your income goes to debt payments?
• Equity: The difference between what you owe and your home’s market value.

Can You Qualify With Bad Credit?

Yes—but it’s not automatic. Many lenders require a credit score of 620+, but others may approve you with lower scores if other factors are strong.

What Lenders Really Look For:

• Equity Amount (ideally 15-20%+ remaining after loan)
• Stable Income History
• Low Debt-to-Income Ratio (ideally below 43%)
• Recent Payment History

Pro Tip: Don’t rely solely on your credit score. Prepare supporting documents like proof of stable income, a low debt-to-income ratio, and a clear repayment plan—these can strengthen your case with lenders.

Alternatives If You Don’t Qualify

If you’re hitting roadblocks, consider these options:

• HELOC (Home Equity Line of Credit): Revolving credit, more flexible.
• Cash-Out Refinance: Replace your mortgage with a larger one, pocket the difference.
• Co-Borrower Route: Team up with someone with stronger credit.
• Non-Traditional Lenders: Some fintechs and private lenders are more flexible.

Real-World Tip: Compare Your Options

Use comparison platforms and speak with multiple lenders. Local platforms like Be My Neighbor help you connect with trustworthy, licensed mortgage professionals

Conclusion: You’ve Got Options (Even With Bad Credit)

Having bad credit doesn’t mean you’re out of the running—it just means you need to play smarter. Lenders today look at the full picture: your equity, income, payment history, and overall debt profile.

If a home equity loan feels out of reach, don’t give up. Flexible alternatives like HELOCs, cash-out refinancing, or even bringing in a co-borrower can open doors. The key is knowing your numbers and working with the right professionals who understand your goals.

Need someone to guide you?
Be My Neighbor connects you with licensed, trustworthy mortgage advisors who offer clear answers, not cookie-cutter decisions. Whether you’re fixing your finances or funding your future, expert guidance makes all the difference.

Bad credit is a hurdle, not a dead end. You’ve got options. Use them wisely.

FAQs:

Can I get a home equity loan with a 550 credit score?

Possibly, if you have strong equity, low debt, and stable income. Some non-bank lenders may consider you.

What’s better—a home equity loan or a HELOC?

Depends on your needs. HELOCs offer flexibility; home equity loans offer stability.

Will applying hurt my credit more?

Most lenders do a soft pull for pre-approval. A hard inquiry happens only during the final application.

Are there government programs for this?

No direct federal programs for bad credit home equity loans, but HUD-approved counseling can help.

Is a co-signer allowed?

Yes, and it can improve your approval odds significantly.

Disclosures:

• This content is for educational purposes only and is not a commitment to lend.
• Loan approvals are subject to full underwriting review.
• Interest rates and terms are subject to change without notice.
• Realpha is a commission-free platform but partners with NMLS-licensed loan officers.
• Be My Neighbor Mortgage, NMLS #1743790, operates under the SAFE Act and other federal lending laws.

Always consult a licensed mortgage advisor for personalized advice.