Advice - need equity loan with low credit score but major equity

[Jerry Collins]

Hello BP,

I have a cousin who owns a home in Downtown DC in a very trendy and expensive Neighborhood called the U Street corridor, and he is trying to get a home equity loan for $80000, but his High credit score is only 536. the home has a current mortgage of $550,000 but the property value is estimated at $1.400,000. I was wondering if the community had any suggestions on what type loans he could get with a score so low. I had someone suggest an Alt-A loan, but want to hear from the BP community. The ultimate goal is to pull the money out, and clean up his credit to raise his scores over the next 6 to 12 months, and then refinance again, and get enough out to totally renovate the property into a duplex, so he can live in one unit and rent out the other.

[Mike Dymski]

We regularly see posts asking why conventional lenders don't lend to borrowers who lack the ability or discipline to manage their finances.  They don't lend because they have decades of statistics that show a good portion of these borrowers don't pay their loans back.  Will some people sell their house with the equity to make the mortgage payment?  Yes.  Will all of them?  Absolutely not.  Keep in mind that interest rates are near 5%.  After the lenders cost of funds and administration costs, they are making, let's say 1-2%, profit on the loan.  That leaves very little room for defaults and borrowers with low credit scores have a high historic default rates.

And having a co-signer with poor credit is just silly and it builds the case against lending.  So does owning a $1.4M home but having credit challenges.  We're missing part of the story.

Sorry for the tough love but lenders are in the business to make money and lending to borrowers with bad credit is a losing proposition for all parties...the lender, the borrower, and the general public.