“Whenever you borrow money, the lender evaluates your finances to determine the likelihood that you’ll pay back the loan. Your credit score, a numerical representation of your borrowing risk, is a major factor in lending decisions.
Lenders typically require a FICO credit score of at least 620 to qualify for home loans, including home equity loans, but some loan programs can help you borrow with a lower score. A FICO score of 620 falls in the fair range, and a good score is 670 or better.
Before the COVID-19 pandemic, “”It was possible to get a loan or mortgage with a credit score as low as 500. (Now) most, if not all, lenders have temporarily raised their credit score minimums up into the 600s,”” says Eric Jeanette, owner of mortgage loan marketplaces Dream Home Financing and FHA Lenders. “”Today, finding any mortgage with bad credit has become very difficult.””
That goes for home improvement loans as well. In fact, three common home improvement loans may not be options if your credit score is too low, says Randall Yates, founder and CEO of The Lenders Network, a loan comparison site for borrowers with credit issues. That includes home equity loans; home equity lines of credit, or HELOCs; and cash-out refinances.
The credit requirements for home equity loans and HELOCs are similar to or even stricter than mortgages. That’s because one of these loans functions as a second mortgage on a property, and borrowers have a higher risk of default.
A cash-out refinance is also risky because you replace your traditional mortgage with a new loan for more than what you currently owe on your home, Yates says.
In general, bad credit home improvement loans are few and far between, including no-credit-check home improvement loans. “”All home improvement loans require a credit check and a home appraisal,”” Yates says.
If you have bad credit and need a home improvement loan, you might need to look to other financing sources, such as personal loans or government-backed loans.”