How to get a home equity loan with bad credit

Having less-than-perfect credit can make it feel like every financial door is closed—especially when it comes to borrowing against your home. But when it comes to home equity loans, bad credit doesn’t automatically mean “no.”

If you’ve built up equity in your home, lenders may be willing to look beyond your credit score and focus on the bigger picture—like your home’s value, income, and overall financial stability.

In this guide, we’ll walk through securing a home equity loan with bad credit.

Can I get a home equity loan with bad credit?

You can obtain a home equity loan with bad credit—it just won’t be as easy as if you had a high credit score. You may also be restricted in terms of loan amounts.

Home equity lenders have different borrowing criteria, but the requirements are usually a minimum credit score of 620, owning at least 15%- 20% of your home’s equity, and a maximum debt-to-income ratio of 50%. The vast majority of lenders will also look for an on-time bill payment history and stable employment/income.

Since your entire financial profile is being evaluated—not just your credit—having a low credit score can be outweighed by other factors. Qualifying for a home equity loan with bad credit is possible if you:

• Own a high percentage of equity in the home.
• Have a monthly income that is substantially higher than what is required for the loan.
• Have a very low debt-to-income (DTI) ratio.

How to qualify for a home equity loan with bad credit

Check your credit report

Begin by pulling your credit report from Equifax, Experian, and TransUnion to check for errors you can dispute.

If you have the time, try boosting your credit score. If you can’t raise your score before applying, focus on protecting it by paying bills on time, avoiding hard credit pulls, and not taking on new debt.

Have enough home equity

Equity is essentially the ‘amount of house you own’ that doesn’t belong to the bank. You’ll need to own at least 15–20% of your home and maintain a minimum of 15% equity even after taking out a home equity loan.

A few ways you can build more equity in your home—and strengthen your application— are by making smart home improvements, paying down your mortgage, or timing your loan for when home values are higher.

Calculate your DTI

Lenders use your debt-to-income (DTI) ratio to see how much of your monthly income goes toward debt—and whether you can afford to take on more. It’s calculated by dividing your monthly debt payments by your gross monthly income.

Most lenders prefer a DTI of 43% or less, though some allow up to 50%. Keeping these thresholds in mind is important when taking on new debt, like car loans or additional credit.

Organize your financial documents

If your credit isn’t great but your income is solid, having your financial paperwork ready can go a long way. Lenders want to see that—even with past credit bumps—you have the ability to repay what you borrow.

Documentation helps tell that story. Most lenders will ask for proof of income and assets, like bank statements, tax returns, pay stubs, or W-2s. If you’re self-employed, you’ll likely need to share a bit more, including two years of personal and business tax returns, profit and loss statements, balance sheets, and bank statements to show consistent cash flow.

Consider a co-signer

A co-signer is essentially a third party who is just as responsible for the loan as you are. Having a co-signer with great financial standing can significantly improve your chances of qualifying.

But, here's the catch: if you fall behind on monthly payments, their credit suffers along with yours. Cosigning is a major responsibility, so it's best to ask someone close to you, such as a relative.

Shop around

Different lenders offer varying terms, interest rates, and fees; some may be more accommodating of bad credit than others. By thoroughly researching and comparing your options, you can find a lender that offers the best possible deal for your financial situation.

Look for lenders who specialize in working with individuals with less-than-perfect credit, and be sure to review their reputation and customer reviews.

Where to find a home equity loan with bad credit

You can improve your chances of getting a home equity loan by looking at traditional banks, credit unions, or online lenders. Banks and credit unions may offer better terms, while online lenders provide faster, more flexible approval, even with poor credit.

Explore bad credit home equity loan options and lenders here.

Alternative financing options

If the cons of taking out a home equity loan with poor credit outweigh the pros, you may want to consider other options.

Home equity investment

A home equity investment (HEI) is a way for homeowners with less-than-perfect credit or non-traditional income to access cash without taking on monthly payments.

• Access to a lump sum of cash
• 500+ credit score may qualify
• No monthly payments
• No income requirements

In exchange, homeowners share a portion of their home’s future appreciation. Repayment happens as a lump sum at any point during a 30-year term, including when the home is sold, refinanced, or paid off using another source of funds.

Personal loan

Unsecured personal loans for borrowers with poor credit typically come with high-interest rates. But if a home equity loan isn’t an option for you or you don’t have collateral to borrow against, a personal loan can be a good way to secure financing.

• No collateral required
• Fixed monthly payments
• Funding in as little as 1–7 days

Home equity line of credit (HELOC)

Home equity lines of credit (HELOCs) offer flexible access to your home’s equity over time, similar to a credit card.

• A revolving credit line you can borrow from as needed
• Interest-only payments during the draw period

After the draw period ends, you’ll enter repayment and pay back what you borrowed, plus interest. Most HELOCs require a credit score of 620 or higher, which can make qualifying more difficult with poor credit—but it’s still worth comparing lenders and prequalifying where possible.