Lenders usually have a poor reaction to receiving applications from bad credit borrowers – or at least that is what we are led to believe. But the range of opportunities available to bad credit borrowers is much wider than is generally thought. Even when applying for a 125% home equity loan with bad credit the odds on approval are better.
How is this possible? It is because lenders are really only after one thing – the assurance that they will get their money back and, preferably, at a profit. For all applicants, the best way to provide this assurance is to offer security, thus making it the best way of securing loan approval. And the best form of security is home equity.
Between basic criteria and the conditions laid down by the specific financial position that applicant is in, there is no room for approval guarantees. But, approval is more likely for a home equity loan than arguably any other loan type.
How 125% Loan Work
Of course, it is confusing to think that a lender would be willing to grant a loan worth more than the actual value of the security provided in a loan application. But what makes it possible is the value that lenders place on home equity.
Getting a 125% home equity loan with bad credit is possible because the equity itself is likely to increase over time. Unlike other forms of security commonly offered (ex: car), the value does not depreciate. So, even after 3 years, $100,000 equity will be worth at least $100,000.
Securing loan approval on a loan worth 25% more is down to the fact they expect the equity to increase in value too. If the borrower defaults, they can claim the home in compensation, but they predict 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 Position Before Applying
A common mistake made by bad credit borrowers seeking a large loan is to ignore their credit position. Often, they know little more than their general status and maybe score, but make no attempt to examine it for themselves. Yet, the task of getting a 125% home equity loan with bad credit is made easier if your score is understood fully.
Lenders will examine your credit report, so in order to increase your chances of securing loan approval, it is important to be forewarned on issues they may have with your application. They will want to know if the low score is down to bad luck, or if it is down to a poor attitude towards money.
It is also worth noting that credit reports are not always accurate, and frequently are slow to be updated. It means a debt cleared several months in the past may not have registered, so that 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 can seem that because applicants can apply for a 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 advice is taken before throwing oneself into a large loan agreement.
This is especially true when the collateral provided is home equity, which places your home at risk. So, speak to a trusted financial advisor to ascertain the true benefits (and risks) of a specific loan deal before signing anything.
Always keep in mind that while securing loan approval may provide an immediate boost, with the wrong terms and by missing some simple loan conditions, the cost of the home equity loan can turn out to be far greater than is worthwhile.