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Abstract:
Learn how to get a home equity loan even if you have bad credit; answers from a licensed mortgage loan officer.
Griffiths:
In the first interview, "How to Consolidate Your Credit Card Debt with a Home Equity Loan," Dwight Crawford, a licensed loan officer, explained the differences between a home equity loan versus a line of credit. In the second interview, "How to Choose the Right Mortgage Lender When Securing a Home Equity Line of Credit," Mr. Crawford discussed credentials of mortgage lenders.
In this interview, I challenge Mr. Crawford to help us understand how to get a home equity loan with bad credit.
Griffiths:
As you know, many of the One Paycheck at a Time readers are looking for real answers to their financial situation. Many readers have gone through the hardship of bankruptcy, some have been discharged from bankruptcy, and others are wondering if they can prevent from going bankrupt. How do you work to get people home equity loans with these financial struggles?
Crawford:
Most traditional lenders are looking for credit scores above 660 for home equity loans. Unfortunately, not all of us have these scores. Hope is not lost. You have a few options.
You have already taken the first step to the solution, by getting involved in a program like One Paycheck at a Time, which will help you to redirect your spending so that you will be able to create the habits to increase your credit scores. The other option is to find a non-traditional lender that specializes in less than perfect credit. The cost of this type of mortgage loan is typically higher than the more conventional mortgage loan, but if it is used correctly it will be the financial springboard that you will need to clear up your derogatory debt. Again weigh what the loan is doing for you short term as well as long term before you make a final decision.
Griffiths:
Often I see mortgage Web sites asking people to rank their credit score as excellent, good, fair, needs improvement, and poor. Can you help define what a mortgage lender might consider fair, versus, needs improvement, versus poor?
Crawford:
Credit scores range from 350 – 850 depending on the credit bureau. A score between 350 – 500 is considered poor, 500 – 600 needs improvement 600 – 660 is fair, 660 – 700 is good and 700 and above is excellent.
Griffiths:
Does filing bankruptcy mean that a person has no chance of qualifying for a mortgage loan or home equity loan until seven years later after they are discharged?
Crawford:
Not at all. Many traditional lenders want to see that your bankruptcy has been discharged for at least 3 years. But many lenders have developed mortgages that will pull you out of an open Chapter 13 bankruptcy as long as you have been paying on time and you can still meet the minimum credit score requirements.
The drawbacks to these types of mortgage loans are that you are going to be limited to the amount of equity that you have access to and you will be saddled with a higher mortgage interest rate. Remember this is a springboard loan that should not be kept longer than a few years until you have reestablished your credit.
Griffiths:
What advice can you give homeowners if they are facing an unexpected layoff or sickness/injury and can’t make their mortgage or home equity loan payments?
Crawford:
Contact your mortgage lender. Banks don’t want to foreclose. They make more money on the interest that we pay to them. Foreclosure is a very expensive process for any mortgage lender. If you contact them they might be able to put you in a mortgage loan work out program. This may consist of reducing your interest (temporarily) or even letting you skip a few months payments and extend the term of the loan by the amount of months that you have skipped. If you avoid talking to the mortgage lender, I can assure you that they will not avoid taking action against you.
Griffiths:
How can a person improve their credit score if they previously had a bankruptcy?
Crawford:
The easiest way is to make your payments on time. Just as important is to keep your balances lower than 50% of your total credit limit. The credit bureaus don’t want to see you maxed out on debt. In order to keep you from getting into more trouble they will lower your scores so that it will be harder to obtain additional credit.
Griffiths:
If a person who received a home equity loan with bad credit improves their financial situation over the next few years, does it ever make sense to refinance a home equity loan to get a lower interest rate?
Crawford:
Absolutely. If you have achieved your financial goals, it is time to save more money. What I tell most of my clients that have repaired their credit and cut their expenses with an home equity loan is to start saving money long term by getting a lower rate loan with a shorter term. This way you can have the mortgage loan paid faster with less expense.
Griffiths:
If a person is really in financial problems, for example is looking for a home equity loan to pay their regular mortgage payment, what do you recommend these people do before they spiral into total financial destruction?
Crawford:
Understand what you are dealing with. Get a copy of your credit report and check it for mistakes and things that need to be updated. Sometimes, even though I hate to say it, you might have to regroup and ask yourself some hard questions.
- Can I really afford this house?
- What happened that got me in this situation?
- Can I fix it or with my current debt is it going to happen again?
There is no shame in selling your home and finding something smaller or even renting for a while until you are back on your feet. Never let your ego interfere with what is best for your family’s future!
Dwight Crawford is a licensed loan officer, Certified Mortgage Consultant as well as the Chief Executive Officer of the Charlotte, NC based Crawford & Associates Professional Mortgage Planners. With over 15 years in the residential, commercial and small business mortgage lending world, Mr. Crawford is dedicated to education of his clients to show them that a mortgage is not just a bill that has to be paid but it is an invaluable tool to eliminate debt and to create wealth. For a private consultation Mr. Crawford can be reached directly at 516-395-3246 or by email at
crawford.associates@hotmail.com.
Related Articles:
How to Consolidate Your Credit Card Debt with a Home Equity Loan
How to Choose the Right Mortgage Lender When Securing a Home Equity Line of Credit
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