Lenders generally have a bad reaction to receiving applications from borrowers with bad credit, or at least that’s what we’re led to believe. But the range of opportunities available to bad credit borrowers is much broader than is generally realized. Even when applying for a 125% home equity loan with bad credit, your chances of approval are better.
How is this possible? It’s because lenders really only want one thing: the assurance that they’ll get their money back, and preferably at a profit. For all applicants, the best way to provide this guarantee is to offer security, making it the best way to ensure loan approval. And the best form of security is home equity.
Between the basic criteria and the conditions established by the specific financial situation in which the applicant finds himself, there is no room for guarantees of approval. However, a home equity loan is more likely to be approved than any other type of loan.
How the 125% loan works
Of course, it is confusing to think that a lender would be willing to make a loan worth more than the actual value of the collateral provided in a loan application. But what makes it possible is the value that lenders place on home equity.
It is possible to get a 125% home equity loan with bad credit because the equity itself is likely to increase over time. Unlike other commonly offered forms of security (for example, a car), the value does not depreciate. So even after 3 years, $100,000 of equity will still be worth at least $100,000.
Securing approval for a loan worth 25% more is due to the fact that they expect the principal to increase in value as well. If the borrower defaults, they can claim the house as compensation, but they predict that the sale value may have increased by at least 25%. Therefore, a home equity loan is more valuable to both sides of the deal.
Understand your credit standing before applying
A common mistake bad credit borrowers looking for a large loan make is to ignore their credit standing. Often, they know little more than your general condition and perhaps your score, but they don’t try to examine it for themselves. However, the task of getting a 125% bad credit home equity loan is made easier if you fully understand your score.
Lenders will look at your credit report, so to increase your chances of getting loan approval, it’s important to be aware of any problems they may have with your application. They will want to know if the low score is due to bad luck or if it is due to a bad attitude towards money.
It’s also worth noting that credit reports aren’t always accurate and often take time to update. It means that a debt paid off several months ago may not have registered, so when applying for the home equity loan, the score is lower than it should be and the interest rates charged higher.
Be sure, take advice
It may seem that because applicants can apply for 125% home equity loans with bad credit, the opportunity is too good to turn down. However, as with all financial matters (especially on the Internet), it is essential that you seek advice before jumping into a large loan deal.
This is especially true when the collateral provided is home equity, putting your home at risk. So talk to a trusted financial advisor to determine the true benefits (and risks) of a specific loan deal before you sign anything.
Always keep in mind that while getting approved for the loan can provide an immediate boost, with the wrong terms and by skipping a few simple loan conditions, the cost of the home equity loan can turn out to be much more than it’s worth.
