Home Equity Loans With Bad Credit: What to Know Before You Borrow (2026)

Updated October 2026. A plain look at borrowing against your home with a low credit score: how it works, what it costs, the safer alternatives and what happens to the loan if you sell.

Yes, you can often get a home equity loan with bad credit if you have enough equity and steady income, but expect a higher rate and stricter terms. The home is the collateral, so missed payments can lead to foreclosure (CFPB). For context, Freddie Mac’s 30-year first-mortgage average was 7.32% on October 22, 2026; equity loans to weaker credit usually cost more.

Jump to: 🏠 How it works · 🪜 Qualifying · 💲 Risks · 🤝 Alternatives · ⏱️ If you sell · ❓ FAQ

How does a home equity loan work?

A home equity loan, sometimes called a second mortgage, lets you borrow against the value you’ve built in your home. The CFPB describes it simply: you get the money as a lump sum, and the rate is usually fixed. A home equity line of credit, or HELOC, works more like a credit card with a variable rate. If you’d rather replace your first mortgage, compare both with how a cash-out refinance works. Neither is a car title loan; our guide to title home loans and house title loans explains the difference. If you’d rather replace your first mortgage, compare both with how a cash-out refinance works.

Equity is your home’s current value minus what you still owe. Lenders don’t lend all of it. Each sets a cap on how much total debt the home can carry, as a share of its value. If a lender’s cap were 80% on a $350,000 home, total debt could reach $280,000. With $200,000 already owed, the most you could borrow would be $80,000.

The cap varies by lender and by credit score; lower scores often mean a lower cap. Not sure what your home is worth? Start with Beycome’s tool: How much is my home worth.

Can you borrow from your home equity with bad credit?

Often, yes, but it takes more homework. Lenders look at four things: your credit score, your income, your debts and the home’s value. Each lender sets its own minimum score, so one “no” doesn’t mean every lender will say no. Because the home secures the loan, strong equity can offset a weaker score.

• Pull your credit reports first; the CFPB notes you can get them free each week at AnnualCreditReport.com.
• Work out your debt-to-income ratio: monthly debts divided by gross monthly income.
• Gather two years of income records, especially if you’re self-employed.
• Expect an appraisal to confirm the home’s value.

Lower your DTI before applying if you can. In the CFPB’s example, $2,000 of monthly debts on $6,000 of income is 33%. Paying off a small card or car loan first can move that number. Our guide on improving your credit fast lists steps that help.

What are the risks of a home equity loan with poor credit?

The biggest risk is losing the home. If you can’t pay, the lender can foreclose. The CFPB suggests that if you’re borrowing to pay off debts, you first explore options with a credit counselor that don’t put your home at risk.

Cost is the second risk. Rates for weaker credit run higher, and some loans carry upfront fees and closing costs. Over a 10- or 15-year term, a few points of extra interest add up to thousands. Compare the APR and total cost, not just the monthly payment.

Read every term before you sign. Watch for prepayment penalties, balloon payments and variable rates that can jump. If a contract is unclear, the Nolo legal resource center explains common loan terms in plain English, and a local attorney can review the papers. The Consumer Financial Protection Bureau also takes complaints about lenders.

Taxes matter too. IRS Publication 936 says equity loan interest is deductible only if the money is used to buy, build or substantially improve the home that secures the loan. Using it for a car or a vacation doesn’t qualify. For the other ways to fund a project, see how homeowners pay for renovations in 2026.

When can an equity loan make sense?

When it pays for something that lasts, at a cost you can carry. Fixing a roof, replacing a failing HVAC system or making repairs before a sale can protect or add value. Paying off high-interest cards can lower your total monthly payments, but only if you don’t run the cards back up.

It rarely makes sense for spending that won’t hold value, or when your income is uncertain. If you plan to sell soon, a short loan for repairs can pay for itself, but run the numbers against selling as-is first. Our guide to selling a house in poor condition covers that option.

What are the alternatives if you’re turned down?

1. Wait a few months, fix credit report errors and pay down balances, then reapply.
2. Ask about a cash-out refinance, which replaces your first mortgage, if rates make sense.
3. Add a co-borrower with stronger credit, if someone is willing to share the risk.
4. Talk to a nonprofit credit counselor about a debt plan.
5. Look at local repair or energy programs if the money is for the house.

Selling and downsizing is another path. If you have equity, selling turns it into cash without new debt. For buying with weaker credit later, see Buy a Home with Bad Credit, How to Get a Mortgage When Your Credit Isn’t Great and smart ways to buy with bad credit and no cash.

What about a land equity loan with bad credit?

Some people own land outright and want to borrow against it. Fewer lenders make land equity loans, and they usually lend a smaller share of value than on a home, because land is harder to sell. Credit unions and local banks that know the area are often the best place to ask. Our guides on buying land with bad credit and getting a land loan cover the lender side.

What happens to an equity loan when you sell your home?

It gets paid off at closing. Your first mortgage and any equity loan or HELOC are liens on the home, so they’re paid from the sale before you get the rest. Ask each lender for a written payoff statement and give it to your title or escrow company early. Our explainer on what happens to your mortgage when you sell walks through it.

Work out your net first. Subtract both loan balances, closing costs and any fees from your expected price. Our guide to estimating your net home sale profit helps. On taxes, the IRS lets you exclude up to $250,000 of gain on a main home, or $500,000 for joint filers, if you meet the ownership and use tests.

Closing in Florida or Texas? Beycome Title handles payoffs and closings there and in Michigan, Ohio, Illinois and Indiana.

How can Beycome help you buy or sell?

If selling is the better move, keeping costs low leaves more equity in your pocket. Beycome lists in 17 states and DC and has helped 22,000+ homeowners save over $225 million. You can list a property on the MLS for $99 Basic or $399 Enhanced, with $0 to Beycome at closing. See the details of the Flat Fee MLS service for what each plan includes.

Buying next? The buyer program at I want to buy a home has no upfront fee. Beycome keeps 1% of the price, with a $1,499 minimum, and credits the rest of the buyer-agent commission at closing, with lender approval. It’s open to every buyer on homes listed by other agents. The credit can’t apply where no buyer-agent commission is offered, like most FSBO homes, or on homes listed by Beycome sellers.

Home equity loan and bad credit questions