How to Get a Home Equity Loan with Bad Credit
Updated: February 2, 2026 • 6 min read
AUTHOR: (SizeLimitingPyMap: {bio=<div style="color: #374151; line-height: 1.75;">
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<p><span>Bennett Leckrone is the editorial manager and an analyst for Lower. He specializes in making complicated mortgage topics accessible for consumers. That includes both in-depth product guides and in-depth analysis on what economic moves mean for homebuyers and refinancers.</span></p>
<p><span>He was previously a business reporter with a focus on higher education and fintech at BestColleges. In that role, he reported on the development of fintech and AI curriculum, as well as the rapidly changing nature of finance education. He also wrote guides to help business students navigate AI and online education.</span></p>
<p><span>He also reported on state politics at Maryland Matters, with a focus on how policy affected people and businesses. He holds a bachelor of science in journalism degree from Ohio University.</span></p>
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REVIEWER: (SizeLimitingPyMap: {bio=<p><span>Neel Patel is a mortgage industry professional with more than a decade of hands-on experience across loan origination, customer experience, sales operations, and strategy. He has worked at every stage of the mortgage lifecycle, from advising individual borrowers to leading teams of loan officers. </span></p>
<p><span>As an expert reviewer, Neel evaluates mortgage and personal finance content for accuracy, clarity, and real-world applicability. He specializes in ensuring information reflects how lending actually works in practice so consumers can make confident, informed decisions.</span></p>, hs_child_table_id=0, hs_created_at=1770998587713, hs_created_by_user_id=85123122, hs_deleted_at=0, hs_id=207521716567, hs_initial_published_at=1770998795717, hs_is_edited=false, hs_name=Neel Patel, hs_path=neel-patel, hs_published_at=1770998795717, hs_updated_at=1770998733653, hs_updated_by_user_id=85123122, name_first_last=Neel Patel, profile_picture={url=https://19577492.fs1.hubspotusercontent-na1.net/hubfs/19577492/Neel%20Patel%20Cropped%204.jpg, width=1638, height=2048, altText=Neel Patel, fileId=207528140173, type=image}, tags=[{id=2, name=reviewer, label=Reviewer, isHubspotDefined=false, labelTranslations={}, type=option, createdAt=1770043811028, createdByUserId=83124684, updatedAt=1770043811028, updatedByUserId=83124684, order=1}]})
Written by
Bennett Leckrone
Writer / Reviewer / Expert
Reviewed by
Neel Patel
Reviewer
Key Takeaways
- Getting a home equity loan is possible with bad credit, but might come with restrictions and potentially higher rates.
- A credit score of at least 620 is typically required to get a home equity loan.
- If your credit is poor, other factors like your debt-to-income ratio and the amount of equity you have in your home take on more importance in your application.
Tap into more home equity than almost any other lender.
A home equity loan can still be within reach even if your credit isn’t perfect.
Lenders focus on the equity you’ve built and your ability to repay. That means with enough equity, stable income, and a clean recent payment history, approval is still possible.
But getting a home equity loan with poor credit comes with caveats, like higher costs and tighter requirements.
Read on to learn more about getting a home equity loan with bad credit.
What Is a Home Equity Loan and How Does It Work?
A home equity loan is typically a second mortgage that gives you a lump sum at closing, repaid with fixed interest and set monthly payments over a defined term.
It’s secured by your home, which means missed payments can put your property at risk, particularly for borrowers with bad credit.
The amount of equity you have in your home matters when getting a home equity loan. Lenders usually have a combined loan-to-value cap, commonly between 80% and 95%. Your existing mortgage and the home equity loan for which you’re applying can’t exceed that cap, which means you’ll have to have a decent amount of equity built up to qualify.
You can use our equity calculator below to get an idea of how much equity you’ve got in your home.
Home Equity Calculator
Estimate your equity today and model how it could change over time based on mortgage payoff and optional home appreciation.
Your Results
| Year | Home value | Mortgage | Equity | LTV |
|---|
| Month | Payment | Principal | Interest | Balance |
|---|
This tool estimates equity today and projects equity over time using two building blocks: home value and mortgage balance.
1) Equity
Equity = Home value − Mortgage balance
2) Home value over time (optional appreciation)
If “Include annual home appreciation” is checked, the calculator compounds home value each year:
Future home value = Today’s value × (1 + a)y
where a is the annual appreciation rate (as a decimal) and y is years in the future. If appreciation is unchecked, the tool uses a = 0.
3) Mortgage balance over time (amortization)
The mortgage projection assumes a standard fixed-rate loan on your current remaining balance with years remaining.
Monthly payment = P × r × (1 + r)n / ((1 + r)n − 1)
where P is today’s mortgage balance, r is the monthly interest rate (APR/12), and n is the number of remaining payments (years remaining × 12).
Each month, interest is calculated on the remaining balance and the rest of the payment reduces principal:
Interest = Balance × r
Principal = Payment − Interest
New balance = Balance − Principal
4) What the “Key years” table shows
For Year 0, a midpoint year, and the final year, the calculator: (a) estimates home value, (b) estimates remaining mortgage balance after y years, then (c) computes equity and loan-to-value (LTV).
LTV = Mortgage balance / Home value
Explore your options for using your equity.
Common Uses for Home Equity Loans
- Home renovations or repairs: Fixed rates can make budgeting projects easier than variable-rate financing; interest may be lower than credit cards.
- Debt consolidation: Replacing high-rate revolving debt can reduce interest costs, but watch that the repayment term doesn’t inflate total interest.
- Education expenses: Predictable payments may beat private student loan rates, depending on your credit profile.
- Emergency medical bills: A lump sum can stabilize cash flow during a high-cost period.
- Major purchases: Large one-time expenses (e.g., a vehicle for work) may warrant fixed-rate financing.
Your home is collateral. Failing to repay can lead to the loss of your home, and the FTC says you should be wary of any lender pressuring you to borrow more than needed or to sign quickly.
Credit Requirements for Home Equity Loans with Bad Credit
Bad credit generally means a FICO score below about 620 for this type of loan.
Having a credit score below that threshold can make approval harder and rates higher. Most lenders set minimums near 620, though some specialty lenders may consider applications with scores around 600 if other factors like your equity, income, payment history are strong.
Higher credit scores often unlock higher maximum loan-to-value (LTV) or combined loan-to-value (CLTV) caps.
Key Factors Lenders Consider Beyond Credit Scores
Lenders evaluate your full profile, not just your score. Here are some other factors that lenders consider:
- Debt-to-income ratio (DTI): DTI equals total monthly debt payments divided by your gross monthly income. Many aim for 43% or less, though some consider up to 50% with strong compensating factors.
- Loan-to-value (LTV) and combined LTV (CLTV): LTV equals current mortgage balance divided by the home’s appraised value. CLTV includes all mortgages. Lower ratios reduce lender risk.
- Minimum equity: Many lenders want at least 15% to 20% equity before approving a home equity loan.
- Documentation: Expect pay stubs, W‑2s, tax returns, asset statements, and employment verification. Self-employed borrowers typically provide two years of tax returns and a year-to-date profit and loss statement.
- Payment history and credit events: Recent late payments, collections, or bankruptcies can require explanations and seasoning.
You can use the debt-to-income calculator below to get an idea of your DTI ratio.
Debt-to-Income (DTI) Ratio Calculator
Compare your total monthly debt payments to your annual income (before taxes) and see how your DTI stacks up.
How this calculator works
Debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income.
This calculator converts annual income into monthly income:
Gross monthly income = Annual income ÷ 12
Then it computes:
DTI (%) = (Total monthly debt ÷ Gross monthly income) × 100
DTI categories used here: Good (35% or less), Acceptable (36% to 43%), Need Work (above 43%).
Your results
Connect with an expert loan officer to see if you qualify
How to Improve Your Chances of Approval
- Audit your credit reports: You can obtain free reports from Equifax, Experian, and TransUnion at AnnualCreditReport.com. FTC research suggests about 20% of people have at least one error on a report. Dispute any inaccuracies you find on your report.
- Pay down revolving debt: Lower utilization can boost your score and reduce DTI.
- Avoid new credit: Hold off on new cards, loans, and hard inquiries before and during underwriting.
- Gather documentation: Have pay stubs, W‑2s, tax returns, and bank statements ready to accelerate review.
- Write a letter of explanation: If you had a temporary hardship (e.g., medical issue), provide context and evidence.
- Shop broadly: Compare various lenders, including your current bank or mortgage servicer, which may offer relationship pricing.
Lower’s digital application lets you upload documents securely, track status in real time, and work with a dedicated home loan expert who can spot issues early and help you present your strongest application.
Step-by-Step Home Equity Loan Application Process with Bad Credit
- Pull and review credit reports; dispute errors and monitor your score.
- Calculate your current DTI and target 43% or less, if possible.
- Estimate your home’s value and equity; check the maximum CLTV you’re likely to qualify for based on your score.
- Assemble paperwork: pay stubs, W‑2s/1099s, two years of tax returns, asset statements, and ID.
- Get quotes from at least three lenders and request written estimates of rates, fees, and terms.
- Prepare a concise letter of explanation for any late payments or credit events.
- Consider a qualified co‑signer if your profile falls just short on score or DTI.
- Compare total cost: interest rate, APR, fees (origination, appraisal, title, recording), and prepayment terms.
- Complete appraisal and underwriting; review closing disclosures carefully before signing.
Understanding Loan-to-Value and Debt-to-Income Ratios
- Loan-to-value (LTV): LTV = current mortgage balance ÷ home’s appraised value.
- Debt-to-income (DTI): DTI = total monthly debt payments ÷ gross monthly income.
These ratios drive eligibility, pricing, and how much you can borrow.
Illustrative ranges (lenders set their own limits and pricing):
|
Credit Score |
Max LTV Allowed |
Sample Rate Range |
|
600–619 |
70% |
Highest |
|
620–679 |
80% |
Higher |
|
680–739 |
85% |
Moderate |
|
740+ |
90% |
Lowest |
Many lenders cap CLTV around 80% to 85% overall, even for stronger scores. Some products may allow higher caps at top-tier credit, per lender guidelines.
Managing Higher Interest Rates and Fees with Bad Credit
If you qualify with bad credit, expect rates to run roughly 1.0–1.5 percentage points higher than standard tiers. On a $50,000 loan over 15 years, that can mean roughly $7,000–$11,000 more in total interest versus a lower-rate borrower. To manage costs:
- Compare APRs and the full fee stack: origination, appraisal, title, recording, lender credits, and any prepayment penalties.
- Negotiate: Use competing offers and a stronger profile (lower DTI, fewer derogatories) to seek better pricing.
- Ask about waived or automated valuations: Some lenders offer no-appraisal options on eligible loans, which can cut closing costs.
Alternative Options to Home Equity Loans
Consider these if terms are unattractive or you can’t qualify today:
|
Option |
What it is |
Pros |
Cons |
Typical Credit Needs |
|
HELOC |
A revolving line secured by your home; draw period often interest-only, then repayment phase |
Flexible access; pay interest only on what you use |
Variable rates; payment can rise later; still secured by your home |
Similar to home equity loans; credit score in the mid‑600s+ often needed |
|
Cash‑out refinance |
Replaces your first mortgage with a larger one and takes cash at closing |
One loan, potentially lower rate if first‑mortgage rate is favorable |
Resets your first mortgage; may raise total long‑term interest |
Stronger credit usually required than HELOC/HELOAN |
|
Personal loan |
Unsecured installment loan |
No collateral; fast funding |
Higher rates; lower limits; shorter terms |
Varies widely; mid‑600s+ for best rates |
|
Reverse mortgage (62+) |
Converts home equity to cash with no monthly payment until you leave the home |
No monthly payment; flexible disbursement |
Fees can be high; reduces equity for heirs |
FHA/HUD program criteria; financial assessment |
|
Equity‑sharing investment |
Investor provides cash for a share of future home value |
No monthly payment; no interest |
You give up a slice of appreciation; settlement fees apply |
Underwriting based on home value/equity, not just score |
Risks and Considerations When Borrowing with Bad Credit
- Repayment risk: A home equity loan is secured; default can lead to losing your home.
- Higher lifetime costs: Elevated rates and fees increase total interest paid.
- Tight budgets: Fixed payments may strain cash flow if your income is variable.
- Market risk: Falling home values can push you toward negative equity.
- Credit impact: New debt raises your DTI; late payments hurt your score.
The Bottom Line
It’s possible to get a home equity loan with bad credit. Lenders consider other factors, like DTI and home equity, when evaluating your application. Paying down revolving debt, disputing inaccuracies on your credit reports, and avoiding new credit can all help you land a home equity loan if your credit is poor.
Even if you’re approved for a home equity loan with bad credit, however, it might come with additional restrictions and higher rates.
Frequently Asked Questions About Home Equity Loans with Bad Credit
Can you get a home equity loan with bad credit?
Yes, it’s possible if you have sufficient equity, stable income, and a solid recent payment history, but expect stricter terms and higher costs.
What credit score do you need?
Most lenders look for at least 620, though some may review applications near 600 with strong compensating factors.
What are the main requirements?
Plan on minimum 15%–20% equity, a DTI under 43%–50%, documented income and employment, and no recent major delinquencies.
How much higher are the interest rates?
Rates are often 1.0–1.5 percentage points higher for bad-credit borrowers, which can significantly increase monthly and total costs.
How can you improve your chances of approval?
Correct credit report errors, pay down revolving debt, avoid new inquiries, prepare documentation, and get quotes from multiple lenders.
Which lenders are most likely to approve you?
Institutions you already bank or have a mortgage with may be more flexible, but it’s smart to compare several lenders.
What's the difference between a home equity loan and a HELOC?
A home equity loan provides a lump sum with fixed payments; a HELOC is a revolving line with variable rates and changing payments.
What should you do before applying?
Check your credit, estimate your equity and DTI, gather documents, and compare at least three quotes side by side.
What disqualifies you or raises red flags?
Too little equity, recent late payments, a high post‑loan DTI, and any lender promising guaranteed approval without full documentation.