You don't need perfect credit to get a home equity loan, but you'll have the best chances with at least fair credit, according to Bankrate. You also must have sufficient equity in your home and not too much other debt. The two major types of home equity loans are a fixed-amount second mortgage and a home equity line of credit, or HELOC.
Qualifying by Equity
The amount you can borrow against your home depends on your equity and the particular lender. Generally you can borrow a total of between 80 and 90 percent of your home's value. If you have a $60,000 mortgage on a house worth $100,000, a home equity loan of $20,000 brings you to $80,000 total debt, or 80 percent.
Credit Score and History
The minimum credit score for a home equity loan with most lenders is between 660 and 680, according to TD Bank manager Mike Kinane, speaking to Bankrate. Some lenders qualify borrowers with a FICO score as low as 620, however, depending on other aspects of their credit.
A FICO score from 650 to 699 is only considered fair, according to the myFICO website. In fact, more than half of borrowers at the 650 score level have some past-due accounts. In making a decision, lenders weigh multiple factors, including your history of credit use and whether you've made your mortgage payments on time.
Even if your credit score has recovered, a history of foreclosure or bankruptcy can make it difficult to get a home equity loan. Bankruptcy doesn't completely disqualify you, however.
Total Debt Payments
Home equity lenders also examine the ratio of your total monthly debt payments including the new loan to your gross income. This is called the debt-to-income ratio. For example, if your monthly debts come to $4,000 out of $10,000 gross income, you have a debt-to-income ratio of 40 percent. Lenders prefer borrowers whose DTI ratio doesn't exceed the low 40's, and lower is better.
Finding a Loan Despite Poor Credit
You'll have to shop around more if your credit is poor, according to Lending Tree. Your current lender is a possibility, but also get multiple quotes online. You probably won't be able to borrow as much as someone with better credit, and your interest rate typically will be higher.
The myFICO website provides real-time home equity interest rates for different credit score levels. On a 10 year loan, you might pay an interest rate six percentage points higher with a credit score between 620 and 640, as compared to someone with an excellent score. An excellent score falls between 740 and 850.