Normally, home equity loans go up to 100%. It is often even much less, since many lenders are averse to risk. However, there are still some lenders that offer the possibility of getting a loan that covers 125% of the appraised value of your real estate property.
 
Such loans are not meant for first time buyers. First time buyers often just need a mortgage that covers a significant portion of the purchase price. However, if you already have a first mortgage on your home and need more credit, then your best option could be a 125% home equity loan as second mortgage.
 
Another option is when you buy a house that needs urgent renovation. You buy it, for example, for $200,000. You can finance this amount with a first time mortgage at prime rates. However, if you need to invest $50,000 (that extra 25%) for renovating it, what kind of loan should you take? A consumer loan has much higher interest rates than a 125% loan. The value of your home will also increase after you renovate it; therefore the debt will be much better protected.
 
The difference between a 125% home equity loan and other forms of credit is mainly the asset securing the loan. The credit line of a credit card doesn’t have any other form of protection for the lender than your income. For lenders offering a credit card, what counts is your good standing. That means, if you have a good credit score and a reasonable income.
 
Lenders offering a 125% home equity loan, however, normally will check your assets, your income and your credit score. 125% home equity loans are protected halfway through your assets and halfway through your income, besides your wish to keep your credit rating as high as possible. Therefore, it is important that you check your credit score by yourself before applying for a 125% home equity loan (or any other type of loan), since it is possible that some mistakes have crept into it or some information is not up-to-date anymore.
 
If you need the 125% home equity loan, then you will need to go shopping. As said above, not all lenders offer it, since it means a higher risk than common mortgages. But the problems don’t stop there. There is also a higher diversity in conditions and clauses of the loan and you will have to read carefully the small print.

By: Tab Pierce

There is little doubt that sub prime lending at least in part fueled the housing boom. There is also little doubt that sub prime lending has fueled what has become a huge spurt in foreclosures that may last into the next few years.

For five years starting in 2000 the housing industry was in “boom” mode because of the relaxed underwriting and creative new types of mortgages in the market. Now those same companies are going out of business right and left.

Just in the last few weeks hardly a day goes by that you don’t hear or see news of a new scandal related to sub prime loans.

What does it all mean? How will this translate into future business?

1. SUB PRIME RATES will probably go up. Because of all the defaults the economic pressure clearly dictates a rise in the rates going forward. How much is unclear. One half to one full percentage point is the consensus.

2. NEGATIVE IMPACT on the home buying market. It translates to less potential buyers in the marketplace. As many as 16% of homebuyers in recent years have been sub prime borrowers-that is a big number to deal with.

3. LIMIT MORTGAGE CREDIT to some at the margins who maybe shouldn’t qualify anyhow.

4. UNDERWRITING CRITERIA will go up. This will make it more difficult for many to qualify for a loan.

5. ELIMINATE SOME BORROWERS from the marketplace. You could argue that they shouldn’t have been there in the first place.

All this will be accentuated and magnified because of the slowdown in the industry to begin with. In a roaring boom no one would notice. In a slowdown like we have now every glitch shows up.

There will always be a sub prime market it just won’t look like the one you remember from two years ago. It is a great example of how markets work. It will pretty much fix itself (as long as the Feds stay out of it).

By: J Krohn