Home Financing With Low Credit
According to Gupta, many homeowners he meets through Noah find themselves with less than optimal credit. Many families find themselves with debt due to falling behind on high-interest credit cards or personal loans, or face medical or family events that lead to them falling behind on payments.
It can be possible to draw from home equity using a traditional home equity loan even if you have poor credit, but you’re likely to face stricter limitations on how much you can borrow. Your interest rates will also be higher, and ultimately you may risk foreclosure if you can’t keep up with monthly payments.
Can you get a home equity loan with a 500 credit score?
Some homeowners have gone through tough times and ended up with a very low credit score, well below 600. If you’re hoping to get home financing with a low credit score, talk to a mortgage broker about what options exist.
One possible option to consider is an FHA cash-out refinance, which may be available for borrowers with a credit score as low as 580 (although lenders can set their own requirements higher). Unfortunately, it’s challenging in most cases to get home financing with a 500 or 550 credit score. If you can work on your credit until you have at least a 600 FICO score, you may be eligible for a Noah Home Value Investment before other lenders are ready to approve you.
How to improve your credit score quickly
Good credit has the ability to increase your loan options. Here are a few steps you can take in order to raise your credit score:
- Get your free credit report from all three major credit bureaus
- Dispute incorrect entries and have them removed if possible
- Make a firm commitment to pay at least the minimum balance on all credit accounts on time or early every month
- Lower your credit utilization
- Consider keeping credit accounts open – especially older accounts – for the time being, as length of credit history can positively impact your score
Depending on your situation, you may see an improvement in your credit score in a short time. If you are able to dispute and remove erroneous entries, you may see that change reflected in about 30 days. Other changes can take longer, but timely payment can make a big difference to your credit over time.
Alternate home equity financing for low-credit borrowers
Ask your mortgage broker about financing alternatives that don’t weigh credit as heavily. A broker that’s partnered with a referral program like Noah’s may be able to walk you through advantages and disadvantages, and even help you complete and submit paperwork if you find a financing option that looks like the right fit.
“We believe that homeowners should always explore all available options to them, independent of their financial profile. Remember, many of the traditional products of today were once considered alternatives themselves,” Gupta said. “Homeowners should focus on their goals when considering any financial offering.”
Home equity sharing agreements like Noah carry a couple important benefits for homeowners. For one, Noah can often assess a homeowner’s financial profile differently than some traditional lenders, making it easier to work with people whose credit isn’t in strong shape. Another major advantage is that Noah doesn’t put an immediate financial burden onto homeowners. Traditional home equity loans and HELOC options are structured to require monthly repayments right away and add interest to the principal debt. If homeowners are having a hard time paying off other debts, adding more bills and interest could strain an already difficult financial situation.
Especially considering that some banks and lending institutions aren’t offering as many HELOCs at the moment, a mortgage broker can be a good resource to point you to other ways to access your home equity and get started repairing your finances and creditworthiness.
Bad credit can happen to almost anyone, but credit doesn’t tell your whole story. Be open to considering various approaches and talk to professionals like your financial advisor or mortgage broker, and you may be able to access home equity financing to jump-start your financial improvement plans.