Pull Out Home Equity With Bad Credit and Stay in Your Home – 4 Step Guide

If you find yourself in a position where you need to free up some cash, getting approved for a home equity loan — in other words, borrowing money against your property — could be the perfect solution. But what if you have bad credit? Is it possible to get a home equity loan and have bad credit? The answer depends on a number of factors that we’ll discuss in today’s article. We’ll discuss what it takes to qualify for a home equity loan with bad credit, what you can do to increase your chances of getting approved, and out-of-the-box solutions for your situation.

Why is a Home Equity Loan Helpful?

Why is a Home Equity Loan Helpful?

If you are approved for a home equity loan then you will receive a lump sum of cash that you borrow against the equity in your home. For homeowners in a difficult financial situation with a lot of debt or unplanned for expenses then a home equity loan allows you to pay off any debts and expenses, essentially consolidating your debt into one loan to be repaid. This type of loan is a great solution for paying off debt quickly but a bank isn’t always eager to lend money to homeowners with bad credit.

How to Qualify for a Home Equity Loan with Bad Credit

If you have bad credit you’ll need to take a few extra steps to see if you can qualify for a home equity loan. There are general guidelines for getting approved, these include:

  • At least 15 percent to 20 percent equity in your home (keep reading below to see how market values can affect your equity).
  • A credit score of 620 or higher.
  • A maximum (DTI) debit to income ratio of 43 percent, or up to 50 percent in some cases.
  • On-time bill payment history.
  • Stable employment and income history.

First, look at your debt-to-income ratio

First, look at your debt-to-income ratio

To figure out this number you take the amount of money you owe and divide it by how much money you bring in. Banks like to keep the debt-to-income ratio to be in the low 40%.

If you have a lot of debts then your DTI ratio could be too high to work with a traditional lender. If your DTI ratio is in the low 40% area then there is a chance you could get approved for a home equity line of credit even with a bad credit score. In fact, even if you had a great credit score having a high DTI would make a bank less likely to work with you then a bad credit score and low DTI, so depending on your situation this could work in your favor.

Second, take a look at your credit score

Second, take a look at your credit score

On average a lender is looking at a FICO score of 620 or higher to qualify for a home equity loan. If your credit score falls below 620 then you are looking at possibly still qualifying for a loan but it will come with a higher interest rate. Do you have smaller debts you can pay off or consolidate? Do you have payments that need to get caught up? Taking care of these steps can help raise your credit score and give it the boost you need in order to qualify for a home equity loan.

Third, determine the amount of home equity you have

Third, determine the amount of home equity you have

You may know how much money you’ve paid down on your loan, but do you know how much equity you have? Equity can fluctuate with the market and home prices tend to rise over time. If your home has raised in market value then you can actually borrow up to 80% or more of your homes current value with a home equity loan. This is called a  loan-to-value ratio.

Before getting approved for a home equity loan the bank will send someone to appraise your home and get an official market value. You can get general idea of market value by looking on websites such as Zillow, but the final numbers from an official appraisal will be the determining factor.

Fourth, be willing to consider other options

Fourth, be willing to consider other options like a house investor in Utah

Cash Out Refinance- A cash-out refinance is similar to a home equity loan but can be easier to qualify for. A cash out refinance is a combination of refinancing and a home equity loan. These types of refinance deals often can get you a lower interest rate, helping you save more money down the road. With a refinance lenders are more generous in their credit score requirements, often not requiring more than a credit score of 580.

Use a Co-Signer- If your credit score is super low then you may not qualify for a loan on your own, getting someone to co-sign on the loan could make it work. A co-signer essentially is willing to take on the risk of applying for the home equity loan with you — meaning if you default then your co-signer will have to pay back the loan. Any late or unpaid payments to the home equity loan will hurt your credit and the co-signers credit, so this is not an agreement to enter into lightly.

Work with an Investor- There are reputable investors willing to extend a home equity loan and work with you in your unique situation. Gary has worked with families in difficult financial situations by purchasing their home, extending a home equity loan so they could consolidate and pay off all their other debts and still remain in their home with the potential to purchase their home back from Gary in the future.

Home investors are willing to work with homeowners with bad credit to help you clear your debts, free up equity from your home and stay in your house at the same time. If you are not able to work with a traditional lender because you don’t meet all of the requirements then reach out to Gary to see if he can help in your unique situation.

Bad credit and mountains of debt or unexpected expenses can feel overwhelming and impossible to deal with. Contact Gary and start the process of repairing your credit, paying off debts and work towards better financial peace of mind today.

(801) 382-9199


I was a part owner in an electrical contracting firm in the late 1990’s and started to get interested in real estate around 2001. My business partner and I bought our first rental property in 2002. From there we did several real estate transactions until we decided to close the electrical business and part ways. In 2009 I started Gary Buys Houses which is owned by my wife, Eileen, and I. I felt like I could offer one on one personal service to people that wanted to sell their house quickly or not worry about repairs and such. Today, I have built a reputation of being fair and honest with people no matter their situation, so the business continues to help people and be successful. I have been married for 34 years, and have one son, two step sons and 4 grandchildren. I like to travel and spend time in Southern Utah exploring. https://www.garybuyshouses.com/

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