As mortgage rates continue to remain low, many homebuyers are opting to refinance their homes or obtain a home equity loan. Home equity loans or second mortgages are great for individuals who need quick cash for large purchases. Similar to a cash-out refinance, home equity loans provide you with a lump sum of money. However, the process is shorter than a refinance and the fees small.
Home Equity Loan for People with Bad Credit
While a home equity loan is great for getting quick cash, if you have bad credit, you may be subjected to higher fees and interest rate. In this case, you may incur huge fees with this loan. Second mortgages are loans that must be repaid. The equity in your home serves as the collateral for second mortgages. Although you are allowed to borrow up to the amount of your home's equity, avoid borrowing too much money.
Individuals with bad credit may avoid home equity loans. Because the loan is secured by the property, most second mortgages are guaranteed. Nonetheless, a lender will review your credit. Based on your credit score and current standing with your mortgage company, lenders will accept or decline your application. If your application is accepted, and you are a bad credit applicant, anticipate paying a higher interest rate.
Second Mortgages and Home Equity Loan Rates
Interest rates for bad credit applicants are generally a few percentage points higher. For this reason, it is wise to shop around and compare offers from various lenders. By obtaining a lower rate, you will save money. Depending on your credit, getting a low rate may be impossible. Nonetheless, you can refinance your home equity loan after your credit improves.
While most second mortgages offered to individual with poor credit have a higher rate, home equity loans are a great tool for improving credit. The funds acquired from the loan may be used to consolidate debt, pay medical bills, etc. If using a second mortgage to pay off credit cards, closing the credit card account is a wise choice. This way, you avoid acquiring additional debt.
Here are our Recommended Bad Credit Mortgage Companies Online.
Carrie Reeder is the owner of ABC Loan
Guide, an informational website about various types of loans.