How your credit affects qualifying

Similar to a conventional mortgage, both equity lines and installment second mortgages have credit and other requirements. An A credit rating and low debt-to-income ratio will allow you to do pretty much anything you want. Most lenders will allow borrowers with a FICO score (a credit rating) of 720 or above to borrow up to 100 percent of the loan to value of their homes (all of the equity available, in other words). Scores between 620 and 680 generally get you 80 to 90 percent of your equity, whereas scores under 600 may get you 60 percent of the equity or may get you turned down altogether. Don't get discouraged, though, if you have less than Spartan credit. Few of us have perfect credit scores.

If your credit rating is not good enough for the loan you desire, you may want to consider an installment second from a sub-prime lender. Again, the interest rates on these loans are high, but at least you'll get your money, and you'll create a nice tax deduction, in doing so. Once you've improved your credit over the next year or two, you'll want to refinance into a better, conventional mortgage, at a much lower interest rate. At this time, you may also wish to take out a home equity line of credit at the prime rate.

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