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.

• 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.

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.

Yes-but it’s not automatic. Many lenders require a credit score of 620+, but others may approve lower scores (learn more from HUD) if other financial factors are strong.

Lenders often consider your

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

Even if your credit score isn’t ideal, showing financial stability can offset lower numbers.

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.

Get Pre-Qualified and Save Up to 1.5% at Closing with reAlpha

Save up to 1.5% at closing when you combine real estate and mortgage services with reAlpha.

Check if you qualify

Improving your credit before applying for a home equity loan can make a big difference in approval chances and interest rates. Even if your score isn’t ideal, a few credit score improvement tips can help you get back on track:

• Reduce credit utilization: Try to use less than 30% of your available credit. Paying down revolving debt can give your score a quick boost.
• Make consistent, on-time payments: Lenders see this as a sign of reliability.
• Avoid opening new credit accounts: Multiple hard inquiries can temporarily lower your score.
• Get HUD-approved counseling: HUD offers free or low-cost credit counseling that helps homeowners rebuild their credit profile.

Pro Tip: Even if your score doesn’t improve overnight, these credit score improvement tips can strengthen your financial picture and help you qualify for better home equity loan terms.

Even if your credit score isn’t ideal, you still have several ways to unlock your home’s equity. Some lenders and programs specialize in helping borrowers with lower credit profiles. Here are a few routes to explore:

1. Credit Union Home Equity Loans: Many credit unions offer more flexible underwriting and lower interest rates for members, even with credit scores under 620.
2. Community Banks and Local Lenders: Smaller lenders often consider your full financial picture - like your home’s value, income stability, and payment history - rather than focusing only on your credit score.
3. FHA and HUD-Approved Lenders: Some HUD-partnered lenders provide second mortgage options for homeowners with fair or poor credit. Learn more from HUD
4. Private and Fintech Lenders: Certain online lenders and fintechs (including reAlpha Mortgage’s lending partners) use alternative data to evaluate borrowers, giving you a chance to qualify with a nontraditional credit profile.

Pro Tip: Compare loan offers from at least three lenders - rates, fees, and qualification criteria can vary widely for low-credit borrowers.

Want to boost your approval odds? Check out our Credit Score Improvement Tips

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.

A HELOC works like a credit card-you draw funds as needed and pay interest only on what you use.

A Home Equity Loan, on the other hand, gives you a lump sum with a fixed rate and steady monthly payments.

• Choose a HELOC if you need flexibility.
• Choose a Home Equity Loan if you want predictable payments.

Use comparison platforms and speak with multiple lenders. Local platforms like reAlpha Mortgage help you connect with trustworthy, licensed mortgage professionals who know how to work with buyers facing credit challenges.

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Get pre-approval first, then start exploring homes knowing you can receive up to 1.5% of the home price back at closing.

Find your dream home

Bad credit doesn’t have to block your home equity access. With reAlpha Mortgage, you can unlock expert advice - and serious savings.

Buying a home is a big decision - and having the right information puts you ahead. But the real advantage comes from pairing smart research with a smarter way to buy.

When you use a reAlpha real estate company, you can be eligible to receive up to 1% of the home purchase price back as a credit at closing. Add reAlpha Mortgage, and that rebate can increase to up to 1.5% back, helping offset closing costs and keep more money in your pocket when it matters most.

The rebate is simple, transparent, and applied directly at closing - no complicated hoops, no delayed payouts. Just real savings tied to using a fully integrated homebuying experience.

See how much you could save:

• Check your eligibility

• Explore homes that fit your budget today.

• Your next move could come with thousands back at closing.

• Estimate your savings → Rebate Calculator

Using your home’s equity responsibly can help you consolidate high-interest debt and improve your credit mix. Over time, consistent on-time payments can raise your score and build lasting wealth through better loan terms on future mortgages.

Get matched with a trusted mortgage advisor and start saving at reAlpha Mortgage.You’re not stuck - you’re just one smart move away.