A home equity loan with bad credit is possible — but it’s harder to qualify, and the interest rates will be significantly higher than for borrowers with good credit. Many lenders require a 620 credit score minimum, and borrowers with lower scores generally face higher rates. Here’s what you need to know before applying.
Credit Score Requirements by Lender Type
| Lender Type | Minimum Credit Score | Notes |
|---|---|---|
| National bank | 660–700 | Stricter overlays common |
| Regional bank | 620–660 | More flexible; worth trying |
| Credit union | 580–620 | Most flexible; membership required |
| Online lender | 620–660 | Fast approval; rates vary |
| Hard money / private | 500–580 | Very high rates (15%+); not recommended |
How Credit Score Affects Your Interest Rate
Lenders set rates by credit tier and don’t publish a common schedule, so here is what a higher rate costs on a $50,000 home equity loan (10-year term). Rates start from 7.40%, the Freddie Mac 30-year average for the week of October 8, 2026, and add 1 to 4 points; these are illustrations, not quotes:
| Rate Above 7.40% | Illustrative Rate | Monthly Payment | Total Interest |
|---|---|---|---|
| None | 7.40% | $591 | $20,908 |
| +1 point | 8.40% | $617 | $24,071 |
| +2 points | 9.40% | $644 | $27,310 |
| +3 points | 10.40% | $672 | $30,625 |
| +4 points | 11.40% | $700 | $34,014 |
The difference between the first and last rows: $13,106 more in total interest on just $50,000 borrowed.
Equity Requirements for Bad Credit Borrowers
Lenders compensate for lower credit scores by requiring more equity:
| Credit Score | Typical Max CLTV | Max Loan on $300K Home with $180K First Mortgage |
|---|---|---|
| 720+ | 85% | $75,000 |
| 680–719 | 83% | $69,000 |
| 640–679 | 80% | $60,000 |
| 620–639 | 78% | $54,000 |
| Below 620 | Case-by-case | Often 70%–75% CLTV |
CLTV formula: (First mortgage balance + Home equity loan) ÷ Home value
Example: $300,000 home, $150,000 first mortgage, 620 credit score:
- Max CLTV: 78% × $300,000 = $234,000
- Available to borrow: $234,000 − $150,000 = $84,000 (if income and DTI qualify)
Income and DTI Requirements
Even with sufficient equity, lenders evaluate your ability to repay:
- DTI (Debt-to-Income ratio): Different loan products and lenders have different DTI limits (CFPB)
- Income verification: Recent pay stubs, W-2s, and/or tax returns (2 years)
- Employment: Stable employment history (2+ years in same field)
- Payment history: Recent late payments are heavily penalized — a 30-day late payment in the last 12 months can disqualify some applicants
How to Improve Your Chances
Add a Co-Borrower
Adding a co-borrower with a stronger credit profile improves qualification odds significantly. The lender uses the middle score of both borrowers — so even a co-borrower with a 680 score can make the difference.
Larger Equity Position
The more equity you have relative to what you’re borrowing, the lower the lender’s risk. Consider applying for a smaller loan amount relative to your home value, even if you could technically borrow more.
Shop Credit Unions
Credit unions are member-owned, often more flexible, and typically have the lowest rates for bad-credit home equity products. Many use relationship-based underwriting rather than purely algorithmic scoring.
Alternatives to a Home Equity Loan with Bad Credit
| Option | Pros | Cons |
|---|---|---|
| FHA cash-out refinance | 580 credit score; up to 80% LTV; one loan | Replaces existing mortgage; closing costs |
| Credit union home equity loan | Most flexible; relationship underwriting | Requires membership |
| Personal loan | No home equity needed; fast | Rates for bad credit are often much higher than secured loans |
| 401(k) loan | No credit check; low rate | Taxes + penalties if not repaid; reduces retirement savings |
| Rebuilding credit first | Best long-term outcome | Takes 6–18 months |
The FHA cash-out refinance is often the best option for homeowners with 580–620 credit scores who have substantial equity. It converts your existing mortgage to a new FHA loan while pulling out cash — effectively replacing a bad-credit home equity loan with better terms.
Before applying with bad credit, understand the alternatives — a HELOC sometimes has slightly more flexible requirements; see before you get a HELOC for the full checklist. Your loan-to-value ratio is the primary risk metric lenders use — see loan-to-value ratio (LTV) to calculate your current LTV and understand how it affects approval odds. For the full home equity product landscape and when each option makes sense, see home equity guide.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy