From Time Magazine:

As the real estate market fluctuates, it’s important to get an accurate figure. To further calculate your equity, you will need to subtract the amount you still owe on your mortgage from the appraised value of your home. Once you have these numbers, you can calculate your loan-to-value ratio. This is done by dividing the balance of your mortgage by the appraised value of your home. If your LTV ratio is 80% or less, you will likely have a better chance of qualifying for a home equity loan. However, if it is higher, you might want to focus on paying down your mortgage before applying. Step 3: Find a co-signer or a co-borrower Finding a co-signer is another way to improve your chances of qualifying for a loan, regardless of your credit history. When you take out a home equity loan or a HELOC with a co-signer, the lender will consider their credit history and income as well as yours. This could increase your chances of approval, and even help you receive better terms and rates. If you’re struggling to find a co-signer, asking a close relative or a friend could work. However, if you can’t find someone willing to co-sign, you could also consider finding a co-borrower. In this case, both you and the co-borrower will share responsibility for repaying the loan, and both of your incomes will be considered, increasing the chances of approval. Just keep in mind that your co-borrower will also be responsible for repaying the loan, and that the lender will have the right to pursue both of you in case of default. Step 4: Increase your income or reduce your DTI Since lenders will be eager to minimize their risk when lending to someone with bad credit, increasing your income or reducing your debt-to-income ratio will significantly improve your chances of approval. If you’re able to find a way to boost your income, such as taking on a side gig or finding a higher-paying job, this will reflect positively on your loan application. If increasing your income isn’t feasible, you might want to focus on reducing your DTI ratio. To do this, you can try to refinance your existing loans and credit card debt to lower your monthly payments. You could also try to increase the amount you pay toward your credit card balances, and to avoid taking on new debt. Step 5: Consider refinancing your first mortgage Have you been diligently making payments on your first mortgage for quite some time now? If so, you might want to consider refinancing it to get a cash-out refinance loan. This involves replacing your current mortgage with a new one for a larger amount than what you currently owe, and gathering the difference in cash. Although the requirements for a cash-out refinance loan are also stringent, wanting to refinance your mortgage to make home improvements might make this a good choice. Remember that by taking out a larger loan, you will be increasing the amount of debt secured by your home, and that you could end up in a worse financial situation in the long run. Get estimates from multiple lenders Remember that interest rates and loan terms can differ greatly from one lender to another. Comparing quotes from different institutions will help you find the best terms and rates, and it will also increase your chances of securing a loan you can afford. Making a decision as big as taking out a home equity loan with bad credit isn’t easy. It’s not only important to take the time to compare quotes, but to also examine your personal finances carefully to see if taking out the loan is a financially sound decision. Even if you meet the requirements to get a home equity loan, you should carefully consider whether you can afford it, and whether finding a different solution isn’t a better choice.



Read more: How To Get A Home Equity Loan With Bad Credit