Thread: Home Equity Loans/Lines of Credit for "Bad Credit" (mid500s)

We have about 45,000 equity in our home (which we'd like to use for home improvements), and have stable employment histories (5 years plus). Have been late on our mortgage once in the past year. No bankruptcies or foreclosures, just late bills and credit card payments which have lowered our scores. Homeowner (my partner) has moderate student loans ($20,000) and auto loans ($10,000) with an annual income of around $35,000.

We're looking to get about a $10,000 loan-- either home equity or home equity line of credit (not sure of the difference). Questions:

1. Is it reasonable to expect that any lender would work with us at this point? If so, does anyone know of reputable lenders off the top of their heads, or a site online that could reliably help us "shop" for a loan? We're wary of getting scammed.
2. What is the process? Does it involve an appraisal, closing costs, etc.?
3. Would you recommend home equity loan or home equity line of credit?
4. Would using a cosigner significantly improve the chances of approval?
5. Would waiting until we can demonstrate a year of on-time mortgage payments improve our chances?

Many thanks!

Your best shot at getting approval for a HELOC will most likely be with a local bank/credit union. The amount of time it will take, fees, and required documentation should be less onerous as well.

However, the fact that you've been late on mortgage/credit card payments is going to really hurt you. I haven't applied for a HELOC lately, but like any other loan these days, nothing is easy to get done. You basically need to be in such a position that you don't need the money in order to qualify for the loan. Unfortunately, that's the way things are today, and anything negative on your credit reports will make the process even more difficult.

Also, what's the loan-to-value ratio on your home? The fact that you have $45K in equity doesn't tell me much. Underwriters will be much more concerned about your LTV ratio, debt-to-income ratio, and credit scores. In addition, an appraisal will be done and there will be some application fees, but there shouldn't be any significant closing costs.

I would focus on cleaning up your credit reports/improving credit scores and staying current on your other loans for a year or two before trying to tap into your equity.

Oh, and HELOCs are similar to credit cards (revolving credit w/ variable rate), except they are secured by your home. With a home equity loan you would receive the entire amount at once and have a fixed rate.