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How to Tap into Home Equity with Bad Credit
by
Marco Maknown
•
July 24, 2026
•
18 min
Bad credit does not automatically disqualify you from accessing your home equity, but it can narrow your options and may increase your cost of borrowing or affect available terms. Traditional lenders often use credit score as one factor in evaluating repayment risk, and a lower score may lead to higher rates, lower loan-to-value limits, additional documentation requirements, or products designed for borrowers who do not fit conventional underwriting criteria.
Let’s examine what “bad credit” means to a lender, which home equity products remain available when your score is low, how your credit affects your rate and terms, how to strengthen your application before you apply, what to do if you’re turned down, the risks of borrowing against your house, and how JG Wentworth’s home equity options fit into this picture.*
Can you get home equity with bad credit?
Yes — some borrowers with lower credit scores may still be able to access home equity, but approval, pricing, available products, and funding amounts vary by lender, product type, property value, equity position, income, debt-to-income ratio, and other underwriting factors. Home equity can reduce certain lender risks because it serves as collateral, but it does not guarantee approval or favorable terms.
What lenders define as bad credit
“Bad credit” isn’t a single fixed number — it shifts depending on the product and the lender. In the world of home equity lending, a score below 620 is commonly treated as the line into subprime territory, and some lenders consider anything under 660 to carry meaningfully elevated risk (The Mortgage Reports). That means a score many people would consider merely “fair” — say, 640 — can already put you into a different pricing tier than a borrower with a 720 or higher. Understanding where your score sits relative to these thresholds is the first step in setting realistic expectations before you apply.
Minimum credit scores by product
Minimum credit score requirements vary meaningfully by product, and knowing these thresholds helps you target the right application instead of collecting rejections.
- Most lenders look for a credit score between 620 and 680 when reviewing HELOC or home equity loan applications, according to Chase, with scores of 700 or higher typically unlocking the most competitive rates (Chase).
- NerdWallet’s lender survey found a similar pattern, with most lenders requiring at least a 640 for a HELOC and 680 for a home equity loan (NerdWallet).
- Credit unions and portfolio lenders — those that keep loans on their own books rather than selling them — are often more willing to work below these thresholds, particularly for existing members with an established payment history.
How equity offsets credit risk
Equity can be an important factor because it may serve as collateral or otherwise support the transaction structure, depending on the product. Unlike unsecured credit, many home equity products are tied to the home, which can make them available to a broader range of borrowers. However, using home equity also means taking on obligations secured by, or otherwise connected to, your home.
Lenders offset lower credit scores by requiring more equity in the property — often pushing the maximum combined loan-to-value ratio down from a common 85% to something closer to 70% for weaker credit profiles. In practical terms, the more equity cushion you leave in the deal, the more a lender is willing to overlook a lower score.
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Home equity options when your credit is low
Homeowners with damaged credit have three realistic paths to their equity: a cash-out refinance, a HELOC or home equity loan, and a home equity sharing agreement. Each works differently, and the right choice depends less on which one sounds best and more on which one your specific credit and equity profile actually supports.
Cash-out refinance
A cash-out refinance replaces your entire existing mortgage with a new, larger one, delivering the difference to you in cash at closing. Because this is a first-lien product backed by government-insured programs in many cases, it can sometimes accommodate lower credit scores than a second-lien HELOC or home equity loan — FHA-backed cash-out refinances, for example, have been offered to borrowers with scores well below what conventional lenders require, though borrowers should expect higher costs and mortgage insurance in exchange for that flexibility. The tradeoff is significant: refinancing means giving up your current mortgage rate entirely, which is a serious cost for anyone who locked in a rate during the low-rate years of 2020 and 2021.
HELOC vs. home equity loan
A HELOC and a home equity loan both let you borrow against equity while keeping your first mortgage intact, but they differ in structure and, often, in credit accessibility. A HELOC functions as a revolving credit line with a variable rate, typically requiring a slightly lower minimum credit score than a home equity loan, while a home equity loan delivers a lump sum with a fixed rate and fixed payments — generally requiring stronger credit in exchange for that payment certainty (NerdWallet). For bad-credit borrowers, the practical difference often comes down to what you need the money for: a HELOC suits ongoing or uncertain expenses, while a home equity loan suits a single, defined need like debt consolidation or a major repair.
Home equity sharing agreements
A home equity sharing agreement — also called a home equity agreement (HEA) or home equity investment — provides a lump sum of cash today in exchange for a share of your home’s future value, typically with no required monthly payments during the term. Because the structure differs from a traditional loan, the review process may place less emphasis on credit score than a HELOC or home equity loan. However, eligibility, terms, costs, liens, settlement obligations, and legal treatment vary by provider and state.
The Consumer Financial Protection Bureau has noted that home equity contracts are complex products and that consumers commonly use the funds for debt consolidation and home improvements. The CFPB has also identified potential risks, including future lump-sum repayment obligations that may be difficult to predict and the possibility that a homeowner may need to sell the home or use other funds to settle the agreement. For that reason, homeowners should compare the full cost, settlement mechanics, state-law treatment, and alternatives before proceeding.
How bad credit affects your rate and terms
Bad credit doesn’t just affect whether you’re approved — it directly shapes the price and structure of the loan itself. Expect a higher interest rate, a lower maximum loan-to-value ratio, and stricter reserve and debt-to-income requirements than a borrower with strong credit would face on the same property.
Interest rate premiums
Your credit score can be one of several factors that affect your rate, along with equity, income, debt-to-income ratio, property value, lien position, and product type. Borrowers with lower credit scores may be offered higher rates or less favorable terms than borrowers with stronger credit, but the exact difference varies by lender and market conditions.
On a $50,000 HELOC balance, a single percentage point of additional rate translates to roughly $500 more in interest per year, and over a full 10-year draw period that gap alone can add up to thousands of dollars (The Mortgage Reports). This is why shopping multiple lenders matters even more for bad-credit borrowers than for those with excellent credit — the rate spread between offers tends to widen as your score drops.
Loan-to-value caps
Lenders typically allow a combined loan-to-value ratio of 80% to 85% for well-qualified borrowers, meaning you can borrow up to that share of your home’s value across your first mortgage and any new home equity debt combined (LendingTree). Weaker credit compresses that ceiling. Lenders often require a lower combined LTV — sometimes 70% or lower — to offset credit risk, which means bad-credit borrowers need to retain a larger equity cushion in the home to qualify for the same dollar amount a stronger-credit borrower could access with less equity.
Required reserves and DTI limits
Debt-to-income ratio is a second major lever, and lenders generally want it at or below 43%, though the exact ceiling varies by lender and product (Chase). If your credit score is already borderline, a high DTI compounds the problem — some lenders will decline an application on DTI alone even when the credit score itself might have been approvable. Beyond DTI, lenders increasingly ask lower-credit applicants for more documentation and, in some cases, larger cash reserves as proof they can absorb a payment shock, particularly on variable-rate HELOC products where the monthly payment can rise.
Steps to qualify before you apply
The single most effective thing you can do before applying is to strengthen your application in the areas you control — your credit report accuracy, your revolving balances, and your income documentation — rather than applying repeatedly and hoping for a different outcome.
- Pull and review your credit reports: Start by reviewing your credit reports from all three major credit reporting companies and checking them for errors. Inaccurate late payments, duplicated accounts, incorrect balances, or unfamiliar accounts may affect your credit profile and should be disputed if inaccurate. AnnualCreditReport.com is the official site for free credit reports, and free weekly online reports are currently available from Equifax, Experian, and TransUnion.
- Pay down revolving balances: Credit utilization — how much of your available revolving credit you’re currently using — can influence credit scores. Paying down credit card balances may help improve utilization over time, but score changes are not guaranteed and depend on the scoring model, the rest of your credit profile, and when creditors report updated balances.
- Document stable income: Lenders weigh income stability alongside your credit score, and a well-documented, consistent income history can partially offset a lower score, especially when combined with a lower requested loan-to-value ratio. Gather pay stubs, W-2s, and two years of tax returns before you apply, and if your income is variable — self-employment, commission, gig work — be ready to provide additional documentation showing consistency over time. A borrower with a marginal credit score but rock-solid, well-documented income is a fundamentally different underwriting proposition than one with the same score and murky income, and lenders price that difference.
Alternatives if you are turned down
A denial from one lender is not the end of the road — personal loans, co-borrowers, and a deliberate rebuilding period are all realistic paths forward if your first application doesn’t succeed.
Personal loans for bad credit
If a home equity product is not available or is not the right fit, an unsecured personal loan may be an option for smaller needs. These loans may not put your home at risk as collateral, but they can carry higher APRs and fees than secured products, especially for borrowers with lower credit scores. Compare the total cost, repayment terms, and affordability before committing.
Adding a co-borrower
Adding a co-borrower with stronger credit — a spouse, partner, or family member — can meaningfully improve both your approval odds and your rate, since lenders evaluate the application based on the stronger of the combined credit profiles in many cases. This isn’t a decision to make casually: a co-borrower takes on equal legal responsibility for repayment, and any missed payments will affect their credit as much as yours. But for homeowners who are otherwise well-positioned except for a temporarily depressed score, this is often the single fastest way to unlock better terms without waiting months to rebuild credit independently.
Waiting and rebuilding credit
If you don’t urgently need the funds, spending six to twelve months rebuilding your credit before applying can meaningfully change your outcome — both in approval odds and in the interest rate you’re ultimately offered. A borrower whose score reflects an isolated issue from two or three years ago, with a clean payment history since, can often see a substantial score improvement in that window simply through the natural aging of the negative mark combined with continued on-time payments. This is the least exciting option, but for homeowners who aren’t in an urgent cash crunch, it’s frequently the one that saves the most money over the life of whatever product they eventually choose.
Risks to weigh before borrowing against your home
Every home equity product — regardless of your credit score — carries a common thread of risk: your house is the collateral. That single fact should shape how conservatively you borrow, how carefully you read the fine print, and how much cushion you build into your monthly budget.
Foreclosure exposure
Home equity products are secured debt, and secured debt means your home is on the line if you default. The Consumer Financial Protection Bureau states this plainly for HELOCs: if you fall behind or can’t repay the loan on schedule, you could lose your home (CFPB). This risk exists whether your credit is excellent or damaged, but it deserves extra weight for bad-credit borrowers specifically, since a lower score often reflects a history of financial strain that could recur — meaning the very borrowers most likely to face a future income disruption are also taking on a debt secured by their house. Before signing, be honest with yourself about your income stability, not just your current ability to make the payment.
Closing costs and fees
Home equity loans and HELOCs typically carry closing costs of 2% to 5% of the loan amount, covering the origination fee, appraisal, title search, and related third-party charges (Bankrate). On a $50,000 loan, that’s $1,000 to $2,500 before you see a single dollar of usable cash — a cost that matters more for bad-credit borrowers, who are often accessing equity precisely because cash is tight to begin with. Some lenders offer no-closing-cost options, but they typically recoup that expense through a higher interest rate, so always compare the total cost over the life of the loan rather than just the upfront fee.
Variable rate volatility
Most HELOCs carry a variable interest rate tied to the prime rate, which means your monthly payment can rise even after you’ve been approved and started borrowing. For bad-credit borrowers already paying a rate premium, a rising-rate environment compounds the cost on top of an already elevated starting rate. If predictability matters more to you than flexibility, a fixed-rate home equity loan — or a home equity agreement with no rate at all — removes this specific risk from the equation, even if it introduces tradeoffs of its own.
How JG Wentworth can help you access equity
JG Wentworth offers a Home Equity Cashout — a home equity agreement product — that may be an option for certain homeowners who do not qualify for, or do not want, a traditional loan. Instead of a traditional loan with monthly principal and interest payments, JG Wentworth provides cash today in exchange for a share of your home’s future value, with no required monthly payments during the term and without replacing your current mortgage. Eligibility, available amounts, terms, costs, and settlement obligations are subject to approval and program requirements.
How a Cashout works for you
The Home Equity Cashout is designed for homeowners seeking an alternative to traditional home equity borrowing. Available amounts vary based on property value, equity position, lien status, state availability, underwriting, and program requirements. Because there are no required monthly payments during the term, the review process may differ from traditional debt underwriting, but approval and funding are not guaranteed.
This may make it an option for homeowners who have been turned down by traditional lenders due to credit history, inconsistent income, or a high debt-to-income ratio. Funds may be used for permitted purposes under the program terms, including paying down debt, but using proceeds to reduce debt does not guarantee credit score improvement or improved future financing eligibility.
What to expect in the application
The process starts with a prequalification or estimate step that may help you understand whether the product could fit your needs before a full application. From there, the application and review process considers your home’s value, equity position, lien status, property eligibility, state availability, and other program requirements. Any estimate is not a commitment to fund, and final terms are subject to review, approval, and closing.
Funding timelines
If approved and closed, funding timing can vary. Repayment is not due on a monthly schedule; instead, the Cashout must be settled within the applicable term or upon a triggering event, such as sale, refinance, or an approved buyout option. The total amount due at settlement is tied to the agreement terms and your home’s value at that time, so homeowners should review the settlement formula and compare alternatives carefully before proceeding.
Frequently asked questions
Some lenders may consider HELOC applicants with credit scores around 620, while others require higher scores or stronger compensating factors. Minimum requirements vary by lender and may also depend on income, debt-to-income ratio, equity, property value, and overall credit history.
A formal application for a HELOC, home equity loan, or cash-out refinance may involve a hard inquiry that can affect your credit score. Some providers offer a prequalification or estimate step that may use a soft inquiry or otherwise avoid a hard inquiry, but the process varies by provider and product. Ask what type of credit inquiry will be used before you apply.
Most lenders want borrowers to retain at least 15% to 20% equity after the new loan, but bad-credit applicants should expect to need more of a cushion — sometimes requiring a combined loan-to-value ratio closer to 70% rather than the 80% to 85% ceiling offered to stronger-credit borrowers.
Yes — a home equity loan or HELOC can typically be refinanced once your credit score rises, potentially securing a lower rate, and a home equity agreement can also be settled early through a refinance if you later qualify for more favorable traditional financing.
Home equity sharing may remove the risk of missing required monthly loan payments because monthly payments typically are not required during the term, but it is not risk-free. The agreement may be secured by a lien on your home, requires future settlement, and the amount due can increase if your home appreciates. It should be compared carefully against HELOCs, home equity loans, cash-out refinances, personal loans, and other available options.
Considering alternatives to traditional loans? Consider JG Wentworth’s home equity agreement product
If a traditional loan is not the right fit, JG Wentworth offers a Home Equity Cashout (HEC), which is a Home Equity Agreement (HEA) product. With a JG Wentworth Home Equity Cashout, eligible homeowners may receive cash today in exchange for a share of the home’s future value, with no required monthly payments during the term and without replacing the current mortgage. Eligibility, available amounts, timing, and terms are subject to approval and program requirements.**
- Explore your options: Check eligibility and receive an estimate of how much equity may be available, subject to review and program requirements.
- Use funds for permitted needs: Funds may be used for permitted purposes under the program terms, such as debt, expenses, or other financial goals, with no required monthly payments during the term.
- Understand the settlement obligation: The Home Equity Cashout must be settled within the applicable term or upon a triggering event, such as sale, refinance, or an approved buyout option, according to the agreement terms.
Request a free estimate to see whether a Home Equity Cashout may be available to you.
SOURCES CITED
- “What is a home equity line of credit (HELOC)?” Consumer Financial Protection Bureau. Last modified July 24, 2024.
- “Issue Spotlight: Home Equity Contracts: Market Overview.” Consumer Financial Protection Bureau. January 15, 2025.
- “HELOC Requirements: Minimum Credit Score, Equity and Income Needed.” LendingTree. March 17, 2026.
- Goff, K., and D. McMillin. “How Much Are Home Equity Loan Closing Costs?” Bankrate. March 19, 2026.
- Warden, Peter. “What Credit Score Do You Need for a HELOC in 2026?” The Mortgage Reports. April 7, 2026.
- “Credit Score Needed for a Home Equity Loan or HELOC.” Chase. June 5, 2026.
- Getler, Taylor. “Home Equity Loan and HELOC Requirements in 2026.” NerdWallet. June 2026.
* This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
** Home Equity Cashouts are originated by JGW Residential. LLC (NMLS ID # 2669687 in CO, GA, IL, and WA) NMLS – Consumer Access – Company
A Home Equity Cashout is not a traditional loan and does not require monthly payments. However, it involves a future financial obligation based on the value of your home at the time of sale or another triggering event. In the event of an uncured default . JGW has the right to become co-owners of the property, to declare the payoff amount immediately due, and to sell or foreclose on the property, among other rights. Product classification may vary by state, and in some jurisdictions, this agreement may be considered a reverse mortgage or credit obligation. Please consult with a licensed advisor or attorney to understand how this product may be treated under local law. Licenses.
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