Low FICO Scores? Home Equity Line Or Bank Statement Loan?

HELOC wins if you own a home with at least 10‑20% equity, can show a FICO 620+ (some lenders accept 580+), and prefer a revolving line that lets you tap funds as needed; rates typically track prime, LTV can reach 90%, and you'll need conventional income verification, which keeps the loan's cost lower but ties it to your credit profile【Consumer Financial Protection Bureau guide on HELOCs】.

Bank statement loan fits self‑employed or gig‑economy borrowers whose FICO hovers around 580, lack tax returns, but can provide 12‑24 months of bank statements; the loan is a closed‑end mortgage with higher fixed rates, LTV usually capped at 80‑85%, and it bypasses traditional income docs, making it useful when '5 HELOC vs bank statement differences you need to know' shows credit flexibility as a priority.

• Credit‑score focus - HELOCs usually require a FICO 620+ and lean heavily on that score, while bank‑statement loans can start around FICO 580 and compensate with two years of verified deposits instead of a high credit rating.
• Income proof - HELOCs demand pay stubs, W‑2s, or tax returns; bank‑statement loans accept only the actual cash flow shown on monthly statements, making them viable for self‑employed borrowers who lack conventional documentation.
• Loan‑to‑value limits - Most HELOC programs cap LTV at 80‑85 % of the home's appraised value; many bank‑statement lenders stretch to 90 % when the borrower shows strong cash reserves, but they may lower the limit if the statement pattern is volatile.
• Rate structure - HELOCs typically carry a variable APR (often 5‑9 % for 580‑740 FICO ranges) that can rise with the prime index; bank‑statement loans are usually fixed‑rate (7‑12 % APR) because the lender assumes more risk without traditional income verification.
• Effect on future borrowing - A HELOC adds a revolving line that appears on credit reports and can improve your utilization ratio if managed well, whereas a bank‑statement loan creates a new installment account that may temporarily dent your score but doesn't affect credit‑line utilization.

You can qualify for a HELOC even with a low FICO when you have enough equity, steady income, and work with lenders that target sub‑prime borrowers.

• FICO 580  -  620: credit unions and online lenders often approve up to 70 % LTV if DTI stays below 45 %.
• FICO 620  -  680: conventional banks may fund up to 85 % LTV, especially with 20 %+ equity.
• Primary residence only: scores under 640 rarely get approved for second homes or investment properties.
• Strong cash flow: documented monthly income (paystubs or bank statements) can offset a lower score.
• No recent delinquencies: no collections or charge‑offs in the past 12 months improves odds.
• Portfolio lenders: they assess risk case‑by‑case and may accept scores as low as 560; see CFPB guide on HELOC eligibility for details.

Lenders approve a bank statement loan for low‑FICO borrowers when cash‑flow evidence and equity compensate for the weak credit score.

• Minimum FICO: 580 or higher; some niche programs accept 560 with a 20 % down payment.
• Loan‑to‑Value (LTV): typically capped at 80 % - 90 % of the property's appraised value.
• Bank‑statement history: 12 - 24 months of personal or business statements showing consistent deposits that exceed monthly obligations.
• Debt‑service coverage ratio (DSCR): at least 1.0, often 1.15, calculated from net cash inflow versus projected loan payment.
• Reserves: 2 - 3 months of principal, interest, taxes, and insurance (PITI) in liquid assets.
• Income stability: self‑employment or freelance earnings verified through statements, no W‑2 requirement.

Because the underwriting focuses on documented cash flow rather than credit, borrowers who would be turned down for a HELOC can still qualify for a bank statement loan. The next section shows three real‑world borrowers who met these benchmarks and the loan product that worked for them.

Here are three real borrowers, their credit profile, and the loan that finally worked for them.

1. Sam, 34, freelance graphic designer - FICO 590, no traditional pay stubs, $15 K cash reserves, wants to refinance a $120 K mortgage.
   A bank statement loan accepted his 12‑month bank‑statement review, approved up to 80 % LTV, and offered a rate 0.5 % higher than a typical HELOC.
   The bank‑statement route was the only way to use his irregular income without a co‑borrower.
2. Laura, 45, homeowner with a 15 % equity cushion - FICO 620, stable W‑2 job, $30 K equity in a $200 K house. She needed $25 K for a kitchen remodel.
   A HELOC qualified her because the lender allowed FICO 580+ and LTV up to 90 % of equity.
   The line‑of‑credit gave her a variable rate that started lower than the bank‑statement loan's fixed rate, plus interest‑only payments during the renovation period.
3. Mike and his sister, joint applicants - Mike's FICO 580, high debt‑to‑income; sister's FICO 690, steady salary. They wanted to purchase a duplex for rental income.
   The combined application met the HELOC's 580+ threshold, and the lender accepted projected rental cash flow to boost LTV to 85 %.
   The HELOC let them tap the equity of Mike's primary residence while keeping monthly payments manageable, something a solo bank‑statement loan could not have offered.

These scenarios illustrate how credit score, income documentation, and equity dictate whether a HELOC or a bank statement loan is the better fit.

Interest rates, fees, and LTV for a HELOC and a bank statement loan differ, but both stay within predictable bands for low‑FICO borrowers. A HELOC typically carries an APR of 5.5% to 9% for scores 580 and up, with a flat origination fee of 0% to 2% of the line amount and an annual maintenance fee of $50 to $200. Lenders usually allow an LTV of 65% to 90%, the upper end requiring a strong debt‑to‑income ratio or a co‑borrower, which you'll revisit in the 'use a co‑borrower or rental income' section.

A bank statement loan commands a higher interest rate, often 6.5% to 12% APR, because the underwriting relies on cash flow rather than credit scores. Expect an origination fee of 1% to 3% and a processing charge of $500 to $1,000, both rolled into the loan balance or paid upfront. LTV ranges from 70% to 85% for borrowers with FICO 580‑640, with tighter limits if the documented deposits show seasonal variability. Both products charge prepayment penalties in some cases, so verify the schedule before you apply, as detailed in the upcoming 'how you apply for HELOCs and bank statement loans' section.

The below content will be converted to HTML following it's exact instructions:

• Apply online or in‑person by submitting a completed application, proof of home equity, and recent bank statements; most lenders accept FICO 580+ and LTV up to 90% for both products.
• Choose a lender that offers the specific product: traditional banks for HELOCs (HELOC guidelines and requirements) and specialty finance companies for bank‑statement loans.
• Upload or fax the last 12‑month bank statements, W‑2s (if any), proof of income, and a current mortgage statement; avoid pay‑stub collections if you're using a bank‑statement loan.
• Let the underwriting team run a quick automated credit check for the HELOC and a manual income analysis for the bank‑statement loan; expect a decision within 7‑10 business days.
• Review and sign the closing disclosure, pay any required fees, and receive the line of credit or loan funds via wire or check; then schedule your first draw or repayment plan.

Here are the five questions you must ask lenders before you apply for a HELOC or a bank statement loan.

First, confirm eligibility: 'What minimum FICO score and documented income do you require?' (Most lenders start at FICO 580+ for bank statement loans and accept HELOCs with scores as low as 620).

Second, clarify loan mechanics: 'What loan‑to‑value ratio can I expect, and how does it affect my draw period and repayment terms?' (Typical LTV ranges from 70 % to 90 %).

Third, uncover costs: 'What are the interest rate spread, origination fee, and any annual maintenance charges?' (Rates often sit 0.5‑2 % above prime, fees 0‑2 % of the loan amount).

Fourth, ask about documentation: 'Will you verify deposits via bank statements only, or do you need any tax returns or pay stubs?' (Bank statement loans rely on 12‑month transaction histories, while HELOCs may accept reduced documentation).

Fifth, probe flexibility: 'Can I refinance or convert to a conventional mortgage without penalty if my credit improves?' (Many lenders allow a refinance after 12 months, sometimes with a fee).

Getting clear answers now lets you compare the trade‑offs discussed in the 'rates, fees, and LTV ranges' section and prepares you for the application steps ahead, while also informing how each product will impact your credit trajectory later in the article. FICO score eligibility ranges

HELOC activity shows up as revolving credit, so the balance you draw affects your credit‑utilization ratio and debt‑to‑income (DTI). A high utilization (e.g., using 30%‑40% of a 90% LTV line) can knock a 580‑plus score a few points, while paying the balance down improves utilization and may raise the score over time; the line does not change the loan‑to‑value ratio for any future mortgage.

Bank statement loans are installment accounts, so the monthly payment adds to your total debt and raises DTI. Paying the loan down lowers DTI and can free up borrowing capacity for a later loan, but the repayment history does not serve as proof of non‑traditional income to lenders.

For example, a borrower with a 580‑plus FICO who takes a bank statement loan at up to 70% LTV and reduces the balance by $500 each month will see a lower DTI, making the next mortgage easier to qualify for. Understanding credit‑utilization impact

Joint accounts can trigger a ChexSystems check, but SoFi typically reviews only the primary applicant's record; co‑signers are screened if they are listed as the main account holder (see 'check your ChexSystems status before applying').

Business accounts usually do not prompt a ChexSystems pull unless the bank requires a personal guarantee, in which case the guarantor's ChexSystems file may be examined; most corporate‑type accounts rely on credit and banking history instead of ChexSystems (ChexSystems and business accounts explained).

Pause when your FICO is below roughly 620, because both HELOCs (often requiring 620‑680 for competitive rates) and bank statement loans (usually 580‑660 for the most flexible programs) will charge 2‑4 percentage points higher rates and cap LTV at about 80‑85 % instead of the 90 % you might see with a stronger score;

at that point, credit‑cost savings from a modest rate improvement far exceed any short‑term cash need, and paying down revolving balances, correcting any errors, and adding a few months of on‑time payments can lift you into the 650‑700 range where HELOCs offer 5‑yr fixed‑rate options and bank statement loans open up 90 % LTV and lower fees, setting you up for smoother approval in the upcoming sections on application steps and lender questions.