Home Repair Loans For People With Bad Credit

A low credit score, due to any number of financial challenges faced by a homeowner, may result in denial of loan money by a bank or other lender. Still it is possible for individuals with bad credit scores to obtain loans. The key is comparing a variety of different lending institution requirements and work on meeting those that are most feasible.

Recent Credit Score Changes

The recent economic downturn in the U.S. has resulted in some changes in credit scoring models giving more subjectivity to lenders who approve or deny individuals for home improvement loans. Situations that in the past benefited people seeking loans and other situations that hindered those desiring loans are different now. For example, non-payment of medical bills has little to no effect on people trying to obtain loans today. Therefore, individuals with bankruptcies, collections, foreclosures and liens on their credit reports may still want to check into obtaining home improvement loans. There situations are not necessarily hopeless.

Credit Score Impacts Interest Rate

Homeowners with credit scores below 600 may want to take steps to improve their scores before applying for any kind of loan. Getting a temporary second job may be a good idea for someone who needs to get some debt paid off to boost a credit score. Although adding 20 or 30 points to a credit score is not indicative of a good credit standing, it may lower the interest rate when qualifying for a loan. For example, a person with a credit score of 580 may pay a 14% interest rate while a person with a crediting rating of 610 may qualify for a loan with an 11% interest rate. Over the long term, the lower interest rate saves significant dollars.

Collateral or Co-Signers

Individuals with bad credit may need to offer collateral in order to obtain a home improvement loan. This collateral could be the actual home, a valuable vehicle, an expensive piece of jewelry or fine art. In the event of default on the loan, the lender may take possession of the collateral. Another option may be engaging a co-signer. This may be a parent, sibling, other family member or close friend; however, it is important that the person co-signing for the loan understands that he or she is responsible for repayment in the event the original borrower fails to make payments.

Government Loans

Loan seekers may qualify for a loan through the Federal Housing Administration (FHA) if they meet certain requirements including demonstrating good credit for at least 2 consecutive years following a bankruptcy filing, 3 consecutive years following a foreclosure and also demonstrating 3 years of stable employment, income and bill paying. Veterans or other military personnel may qualify for a home improvement loan through the Veterans Administration (VA). Even with a bankruptcy on file, a veteran may obtain a VA loan as long as he or she has reestablished good credit and can show a history of paying bills on time for the last 12 months.

Lenders are not necessarily the enemy. They simply have criteria they must follow in order to reduce the risks associated with lending money. Most lenders want to help homeowners in their efforts to repair and improve their homes.