Mortgages are not only a huge debt, but one that requires a long-term commitment. In fact, for many, the biggest fear in buying a home is that it will require a lifetime of toil to pay for it. But it can also serve a very practical purpose. For example, a home equity loan for bad credit management can clear a host of financial problems.
The benefits of using a single loan to deal with other debts are obvious. With home equity the size of that loan can be magnified greatly. Perhaps the greatest advantage is that equity increases over time, so meeting loan criteria with this type of security is quite simple.
In fact, as a form of security, equity ensures the bad credit history any applicant might have can be overlooked. But home equity loans have conditions that need to be satisfied first. There are a few simple steps to help in ensuring that all the important boxes are ticked.
Get Your Credit Report
It might seem that a credit report would be of little use given that credit scores are overlooked. But it would be a mistake to ignore your credit status completely when applying for a home equity loan for bad credit.
Certain aspects of an application relate specifically to factors affected by a credit score, and if they can be improved in advance of an application, it can help to ensure the loan is approved. It is important to note that meeting loan criteria comes down to simple things, and with the aid of a credit report the key information can be ascertained.
It is possible to get a credit report from any of three main credit agencies: namely, Experian, Equifax or TransUnion. However, the information (and indeed score) can differ on each as they have different methods when calculating the score. But when seeking a home equity loan, the details are still worth knowing.
Significance of Your Credit Score
It is true that a credit score is not a major influence on any loan application, but that is not to say that it has no influence at all. By discovering and examining your credit report the best way to improve your credit score can be identified. When seeking home equity loans, for bad credit management purposes or to simply raise extra cash, it is the affordability of loan that is key.
Credit scores affect the rate of interest charged on a loan, and this in turn decides the monthly repayment sum. Improving the score will see the interest rate decrease, thus lowering the repayments. It also makes meeting loan criteria easier since the general debt-to-income ratio is improved too.
The debt-to-income ratio is very important. With reduced debts and better interest rates, the income share required to meet debts is lowered. The ratio sets a limit of 40% of income, and so long as the repayments on a home equity loan stay within this limit, approval is almost guaranteed.
There are some other steps to take to improve the chances of getting a home equity loan for bad credit approved. For example, improving the credit score can be accomplished by taking out a series of payday loans to clear single debts. It can be expensive however, with high interest rates and short term repayment schedules.
What is more, while meeting loan criteria is straightforward, the repayments are taken directly from your paycheck, leaving little with which to meet your normal monthly obligations.
Another way is to extend the term of the home equity loan. This makes the monthly repayments much lower, and therefore much more affordable. For example, with a ,000 loan over 10 years, the monthly repayment would be around 0, but over 20 years would fall to 5.