Using Your House As Collateral

Bank loans for those with bad credit can be hard to come by, especially if you are looking for large sum loans. The worse your credit situation is, the more resistance you will encounter when trying to secure personal loans. The good news is that if you are a home owner, you have an advantage that non-home owners do not.

A home is an expensive asset that can be seized and sold for a large sum of money. This gives you leverage if you need large sum loans. Instead of relying on just your credit, you can put your house as collateral for a personal loan or the money that you want to borrow. This is sometimes called a secured loan because the loan is “backed up” by your collateral.

This is not an option available to newer home owners or those who have refinanced recently, as you need to have some equity in your home to offer as collateral. This means that you need to owe less on your home than it is currently worth.

Getting Equity From Your Home

For those who do have equity in their home, the bank knows that you will want to keep your home, even if you have had credit problems in the past. Putting your home up as collateral will show the bank that you are serious about repaying the debt. It is a win-win situation for the bank. If you pay off your loan, then they make money. If you do not pay off your loan, they seize your home and get their money back by selling it.

The bottom line is that banks may be willing to loan money to people with bad credit, if they have a high value asset, like a home, to put up as collateral. As a home owner with bad credit, this can benefit you because the payments on your new loan will be reported to the credit bureaus and will help raise your credit score as you continue to prove your credit worthiness.

Be sure to get a loan that is in the amounts that you want, not some higher loan amounts where you might have a tougher time repaying back. Make sure you can repay the monthly payments on time. Pay attention to the interest rates and other fees. Find out if the interest rates are fixed or variable. If you have a home and you need a large sum loan, using your home to back-up the loan will help you get approved but remember, only borrow what you need or else you might lose your home and your money.

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