Best bad loans for home improvement in 2023

“Whenever you borrow money, a lender evaluates your finances to determine how likely you are to repay the loan. Your credit score, a numerical representation of your credit risk, is a major factor in making loan decisions.

Lenders typically require a FICO credit score of at least 620 to qualify for home loans, including home equity loans, but some loan programs can help you borrow with a lower score. A FICO score of 620 is in the fair range, and a good score is 670 or better.

Before the COVID-19 pandemic, “It was possible to get a loan or mortgage with a credit score as low as 500. (Now) most, if not all, lenders have temporarily raised their credit scores up to 600,” says Eric Jeanette, owner of Dream Mortgage Credit Markets Home Financing and FHA Lenders. “Today, finding any mortgage with bad credit is very difficult.”

This also applies to home improvement loans. In fact, three regular home improvement loans may not be an option if your credit score is too low, says Randall Yates, founder and CEO of Lenders Network, a loan comparison site for borrowers with credit problems. This includes home equity loans; home equity lines of credit, or HELOCs; and cash-out refinancing.

The credit requirements for home equity loans and HELOCs are similar or even stricter than mortgages. This is because one of these loans acts as a second mortgage on the property and borrowers have a higher risk of default.

Refinancing is also risky because you’re replacing your traditional mortgage with a new loan for more than what you currently owe on your home, Yates says.

In general, bad credit home improvement loans are few and far between, including home improvement loans with no credit check. “All home improvement loans require a credit check and home appraisal,” says Yates.

If you have bad credit and need a home improvement loan, you may need to look at other sources of financing, such as personal loans or government-backed loans.”