Applying for a home loan with bad credit can feel disheartening, especially if you’ve been denied in the past. The good news is there are lenders out there who are willing to work with you to get the financing you need.
Here are nine types of loans for homeowners with bad credit.
1. Hard equity loan
A hard equity loan is a type of loan that uses your home’s equity as collateral. This means that if you default on the loan, the lender can foreclose on your home. Hard equity loans are typically only given to borrowers with good credit, but some lenders are willing to work with borrowers with bad credit
2. VA Loan
A VA loan is a mortgage loan that’s guaranteed by the U.S. Department of Veterans Affairs (VA). You may be eligible for a VA loan if you’re a veteran, active duty service member, or reservist. These loans are available to eligible service members and their spouses with no down payment required.
3. USDA Loan
USDA loans are available to eligible home buyers in rural areas as designated by the United States Department of Agriculture (USDA). These loans offer 100% financing, meaning there is no down payment required. In order to qualify, your household income must fall below a certain threshold set by the USDA.
4. Conventional Mortgage
The government does not back a conventional mortgage and typically requires a higher credit score and down payment than other loan options. However, some conventional mortgages allow for lower down payments for borrowers with excellent credit scores. If you have at least a 620 credit score and can put down 10%, you may qualify for a conventional mortgage.
5. Hard Money Loan
A hard money loan is typically used as a short-term financing option when traditional lenders will not approve your loan request due to bad credit or lack of collateral. Hard money loans are funded by private investors or companies rather than banks or credit unions. These loans often come with high-interest rates and fees, so they should only be used as a last resort option.
6. Reverse Mortgage
A reverse mortgage is a type of loan that allows senior citizens to borrow against the equity in their home. The loan doesn’t have to be repaid until the borrower dies or moves out of the home. Reverse mortgages can be a good option for seniors with bad credit who need extra cash to cover expenses.
7. Peer-to-Peer Loan
A peer-to-peer loan allows you to borrow money from other individuals rather than a traditional lender, such as a bank or credit union. These loans are typically made through online platforms that match borrowers with investors who are willing to fund their loans. Interest rates on peer-to-peer loans generally are lower than those of other types of loans, making them a good option for borrowers with bad credit.
8. Microloan
A microloan is a small loan that businesses or entrepreneurs typically use. These loans can be used for a variety of purposes, such as start-up costs, inventory, or equipment. Microloans are typically made by community development organizations or non-profit lenders. Interest rates on microloans are typically higher than those of other types of loans, but they can still be a good option for borrowers with bad credit.
9. Title Loan
A title loan is a type of loan that allows you to use your car as collateral. These loans are typically made for small amounts and must be repaid within a short time, usually 30 days. Title loans are risky because if you can’t repay the loan, you could lose your car. Interest rates on title loans are also very high, making them a last-resort option for borrowers with bad credit.
These are some of the most common types of loans available to borrowers with bad credit. Be sure to do your research and compare offers before applying for any loan.
Final Thoughts
If you have bad credit and are looking for a home loan, options are still available. Talk to a few different lenders to find out what type of loan makes the most sense for your unique situation and financial goals.
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