How to Get a Home Equity Loan with Bad Credit in 2026
Yes, you can get a home equity loan with bad credit, but lenders care more about equity, debt-to-income ratio, and payment history than your score alone. Expect tighter overlays: many banks want 680+, while credit unions and portfolio lenders may work around 620 if you have enough equity and stable income.
If your score is below 620, compare home equity loans against FHA cash-out refinancing and HEI options before you apply.
Credit Score Floors
- Big banks: Usually want 680+ and prefer stronger files, even when your equity position looks solid.
- Credit unions: Often consider 620-680 borrowers and may weigh member history, not just the score.
- Online lenders: Automated underwriting can approve 620-660 files that branch banks reject on overlays.
- Below 620: Traditional approval gets harder, so FHA cash-out or HEI products may fit better.
Equity And DTI
- Equity cushion: Plan on 15%-20% equity minimum, because lenders cap combined loan-to-value around 80%-90%.
- DTI target: A 43% debt-to-income ratio is a common ceiling, though strong reserves can help.
- Income stability: Steady W-2 or documented self-employment income matters when credit is already stretched.
- Payment history: Clean mortgage payments over 24 months can offset a score below a bank’s cutoff.
Better Borrower Options
- FHA cash-out: Often works better under 620 because FHA allows 580 credit, with 500 possible.
- HEI companies: These accept lower scores and trade cash today for a share of future appreciation.
- Credit unions: Local underwriting can be more flexible than national banks when your file is messy.
- Shop lenders: Rates and fees vary widely, so compare offers before accepting a higher-cost approval.
Common Misconceptions
- Myth: Bad credit automatically blocks every home equity loan, no matter how much equity you have.
- Reality: Some lenders approve 620 borrowers, and specialized options may go lower with strong equity.
- Fix: Start with credit unions and portfolio lenders, then compare FHA cash-out and HEI alternatives.
- Myth: A home equity loan is always cheaper than refinancing when your score is weak.
Frequently Asked Questions
Can I get a home equity loan with bad credit?
What credit score do I need for a home equity loan?
How much equity do I need for a home equity loan with bad credit?
The Bottom Line Up Front
Getting a home equity loan with bad credit is possible but requires targeting the right lenders. Big banks want 680+. Credit unions and online lenders may go to 620. Below 620, a cash-out refinance through FHA at 580 is usually the more accessible path to tapping your equity. The equity itself is your leverage — the more you have, the more willing lenders are to overlook credit issues. If you are sitting on 30%+ equity with a 600 credit score, a portfolio lender or credit union will likely work with you.
Credit Score Requirements by Lender Type
There is no single industry-wide minimum for home equity loans — each lender sets its own credit floor. The range is wide, and the type of institution determines how flexible they are. For details, see our guide to home equity loan with bad credit.
Major banks (Chase, Wells Fargo, Bank of America) typically require 680 minimum and prefer 720+. Credit unions are the best option in the 620–680 range because they weigh member relationships and local underwriting knowledge. Online lenders like Figure, Discover, and Spring EQ have automated systems that can approve files in the 620–660 range that traditional banks would reject.
Lender Reality Check
If a big bank denies your home equity application, that does not mean you are unqualified — it means you applied to the wrong lender type. Credit unions and portfolio lenders evaluate the full picture: equity position, payment history on your current mortgage, income stability, and DTI. A clean 24-month mortgage payment history can offset a credit score that falls below a bank’s automated threshold.
How Much Equity You Need
Lenders cap the combined loan-to-value ratio (CLTV) at 80–90% for home equity products. CLTV is your first mortgage balance plus the new home equity loan divided by your home’s appraised value.
At an 85% CLTV cap on a $500,000 home with $300,000 owed, your maximum home equity loan is $125,000 ($500K × 85% = $425K − $300K = $125K). Bad credit borrowers may face a lower CLTV cap — some lenders reduce the maximum to 75–80% for scores below 660 to offset the higher risk.
Home Equity Loan vs HELOC: Which to Choose
A home equity loan delivers a lump sum at a fixed rate with fixed monthly payments. A HELOC provides a variable-rate credit line you draw from as needed during a 5–10 year draw period.
For bad credit borrowers, a fixed-rate home equity loan is usually the safer choice because the payment never changes. A HELOC’s variable rate can increase significantly in a rising-rate environment, making future payments unpredictable. HELOCs also tend to have slightly higher credit minimums (640+) because the variable rate and revolving nature add risk for the lender.
Alternatives When You Cannot Qualify
If home equity loan lenders deny your application, you have other paths to accessing your equity or solving the underlying need.
Options to Consider
- FHA cash-out refinance: 580 credit minimum, 85% LTV — replaces your first mortgage and gives you cash. Works when home equity loan lenders reject you on credit.
- VA cash-out refinance: No VA credit minimum, 90% LTV — the best option for eligible veterans with bad credit and significant equity
- Credit repair then reapply: If you are 20–40 points below a lender’s threshold, 60–90 days of targeted credit work can cross the line
- Personal loan: Higher rates (8–15%+) but no home as collateral — protects your property. Best for smaller amounts ($5,000–$30,000)
Deal Saver
If your first mortgage has a low rate (under 5%) and you need equity access, a home equity loan or HELOC preserves that rate. A cash-out refinance replaces it with today’s higher rate on the full balance. Run both scenarios — sometimes the higher home equity loan rate on a smaller balance costs less overall than resetting your entire first mortgage at a higher rate.
How to Improve Your Approval Odds
Even with bad credit, you can strengthen your application by addressing the factors lenders weigh beyond the score number.
A clean 12–24 month mortgage payment history demonstrates that you handle housing debt responsibly, regardless of past credit issues. Reducing your DTI by paying off a car loan or credit card before applying improves your ratio. And if your credit score is close to a threshold, waiting 60–90 days while working on utilization and disputes can cross the line between denial and approval.
File Guidance
When applying with bad credit, lead with your equity position and mortgage payment history. Provide 24 months of mortgage statements showing on-time payments. Include a brief explanation letter for any credit events (job loss, medical, divorce). Lenders doing manual underwriting weigh these narrative elements — automated systems do not.
The Bottom Line
Home equity loans with bad credit are available through credit unions, online lenders, and portfolio lenders — not big banks. The more equity you have, the more flexible lenders become on credit. Below 620, a cash-out refinance through FHA at 580 is usually the easier path. Above 620 with 20%+ equity, credit unions are your best bet. If you are close to a threshold, invest 60–90 days in credit repair before applying — crossing even 20 points can change your lender options dramatically.
Frequently Asked Questions
Can I get a home equity loan with a 580 credit score?
Difficult but not impossible. A few portfolio lenders and credit unions will consider 580 with significant equity (25%+). The more common path at 580 is an FHA cash-out refinance, which has a 580 floor and accesses up to 85% LTV.
Do home equity loans have closing costs?
Yes. Expect 2–5% of the loan amount in closing costs, including appraisal, title search, origination fee, and recording fees. Some lenders offer no-closing-cost options in exchange for a slightly higher rate. Compare total cost over 5 years, not just the rate.
Can I lose my home with a home equity loan?
Yes. A home equity loan uses your home as collateral. If you default on payments, the lender can foreclose. This is why unsecured personal loans, despite higher rates, may be preferable for borrowers who are uncertain about their ability to make consistent payments.
How long does it take to get a home equity loan?
Typically 2–6 weeks from application to funding. Online lenders tend to be faster (2–3 weeks). Banks and credit unions take 3–6 weeks. The appraisal is usually the longest single step at 5–10 business days.
Is home equity loan interest tax deductible?
Only if the funds are used to buy, build, or substantially improve the home that secures the loan. Using the money for debt consolidation, education, or other purposes does not qualify for the deduction. The combined limit for deductible mortgage debt is $750,000 (married filing jointly).
Resources Used
Last updated: April 18, 2026 · Reviewed by The Lenders Network Editorial Team