How to get a homeowner loan

What is a homeowner loan? 

A homeowner loan is a loan that is secured to your home. It’s also known as a secured loan. This limits the risk to the lender, meaning you could be able to borrow more at lower rates. But if you fall behind with payments, your property could be at risk.

Homeowner loans allow you to borrow large amounts, ranging from £10,000 to £500,000 (depending on the lender and your individual circumstances). You repay this in monthly instalments, including interest, over an agreed-upon period.

What is the difference between a secured and unsecured loan?

A secured loan requires an asset to be used as collateral, whereas an unsecured loan doesn’t.

As a result, with a secured loan, you may be able to:

• Borrow more
• Spread repayments over a longer period
• Pay lower interest rates, but you may pay more in interest overall

Unsecured loans (also referred to as personal loans) don’t provide lenders with the same safety net. That can make this type of borrowing riskier from their point of view, so unsecured loans tend to attract higher rates of interest, and you normally need a good credit score to be accepted.

If you can’t keep up your payments, your credit score may be damaged, but your home would not be immediately affected.

Pros and cons of homeowner loans

Pros	Cons
You can usually borrow more than with an unsecured loan	Borrowing more can lead to serious financial difficulties if you can’t afford the loan
You may be able to access lower interest rates than you would with an unsecured loan	Your home could be at risk if you fall behind with payments, so it’s important to make sure you can afford them for the full term of the loan
You don’t need a perfect credit score to be approved	Your credit score could be damaged if you fall behind with your payments
You could spread the repayments over a longer period, meaning lower monthly payments	Spreading payments over a longer loan term may mean you pay more interest overall

Who can get a homeowner loan? 

If you have equity in a home you may be eligible for a homeowner loan, even if you have bad credit. Whether your application gets approved will depend on your personal circumstances and the lender’s own criteria. We suggest that you use an eligibility checker before you apply to find out if you’re likely to be accepted.

Is it easy to get a homeowner loan? 

Homeowner loans are sometimes considered easier to get than unsecured loans. This is because your home acts as a safety net for lenders. If you don’t repay your loan, they can attempt to collect what they’re owed through the sale of your house.

This action is a last resort, but it still serves as a way for the lender to mitigate their risk. As a result, they’re often more willing to lend to those who may have trouble borrowing elsewhere (e.g., due to having a bad credit history).

That isn’t to say that homeowner loan lenders don’t look at your credit history - just that they weigh it less heavily because they have that additional security.

Secured loan lending criteria

As with all types of lending, there are certain criteria you must fulfil to be approved. Here are some of the most common:

• If securing the loan against your home, you must be the homeowner
• You must have equity in your home. This is the difference between the property’s market value and any outstanding borrowing against it, such as a mortgage. The more equity, the better.
• If you own your home and are mortgage-free, you wouldn’t be eligible for a secured loan, but you could consider remortgaging
• Having a good credit history improves your chances of being accepted and receiving more competitive rates

Read our guide for more information on the secured loan application process.

What should I consider before getting a secured loan? 

Before you apply for a secured loan, think about the following factors carefully:

1. Affordability - Make a comprehensive list of all your income and outgoings and see how much you have left over each month.
2. Credit score - Whilst not the be-all and end-all for your application, your credit score can still affect its outcome.
3. Eligibility - Use an eligibility checker to see if you’ll be approved before you apply.
4. Loan term and length - Consider how much you want to borrow and how long you want to pay it back.
5. Interest and charges - Check the annual percentage rate of charge (APRC), which shows you the full cost of the secured loan, including interest and charges, over the term. Also, check whether there are any early repayment charges.