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

The choice to refinance home loan is a major decision for most people. There can be many reasons for restructuring the home mortgage–the details are unique to each individual borrower. Certain common things apply to all home loans–refinanced or original loans. These aspects of the prospective loan should be review and thoroughly understood by the borrower and should be made clear by the lender or broker who is handling the details of the loan. Look for answers to these questions and make certain to get them answered satisfactorily before proceeding with the refinance.

What can the proceeds of the loan be used for?

If you arrange for cash out when you refinance home loan, the cash can be used for any legal purpose. Homeowners often decide to do extensive remodeling or renovation to the home. The funds may be used to send a child to college, or to pay heavy medical expenses. Sometimes cash is used to reduce the amount of unsecured debt, particularly debt with high interest rates attached. Funds have been used to start a business or to invest in interest bearing vehicles that will yield enough income to offset the cost of the loan interest and fees.

How long does the processing take?

The length of time to allow for the home loan refinance to be completed can range from days to weeks. Generally speaking, the longer it takes to process the loan, the less likelihood of the loan going through. Sometimes less than scrupulous lenders will drag out the process for an inordinate period of time so that they will be able to collect the loan finder’s fee. The important thing is to try to prepare as thoroughly as possible before beginning the process. This can include researching lenders, correcting a credit report and assembling needed documentation.

How much can I borrow?

The amount that you can borrow depends on the market value of the house, the type of loan that you apply for and the equity that is available. The refinance home loan amount can also be affected by your credit score, the general economy of the region and the nation and by other factors beyond your control. It is true that almost anyone can be financed these days, but the question remains whether you want or should borrow as much as you are eligible to borrow.
Borrowing more than 80% of the value of the home can result in you being charged Private Mortgage Insurance (PMI) as a higher risk loan.

How do I find a lender?

Dozens of lenders for refinance home loan can be found in any large telephone directory and even more if you look online. It is important to be cautious about selecting a lender. Look for one that is experienced and knowledgeable in the type of loan that you will be requesting. A lender that has a good reputation with other clients and with professional organizations such as the Better Business Bureau is a good choice in many instances. If you get a referral from a family member that you trust, that is also a great recommendation.

By: Alan Lim

Whether they’re lower interest rates than the one you have now or a shorter duration than the previous one you had, people refinance home loans in order to get the best loan terms they can possibly apply for.

To take full advantage of refinancing, you must try your best to have good credit standing. Remember, the poorer your credit score, the greater risk you will become to lenders, and the higher the payments you’ll end up with after the assessments have been made.

More manageable loan duration.

There are two sides to a coin – some people opt for a longer duration when they refinance home loans in order to take the pressure off their monthly payments as they spread them over a longer period, say, stretching the term from 15 to 25 years. Others, however, decide that they are better off with a shorter duration so they will be relieved of debt early and end up paying a fraction of what they were supposed to pay when they first took out a loan.

Cash when you need it

When you take out another mortgage on your home – in particular, filing for one that has a value bigger than your balance on the first loan – then you can even stand to get some cash to be used for anything you want. This is known as cash-out refinancing, “cashing out,” or dipping into your home equity.

Remember, this scheme is only for when you need cash to pay for an emergency (although various people have different perceptions of what an ‘emergency’ constitutes). The best emergency at this point is the need for you to use this cash to pay off higher-rate debts which you may have.

Nevertheless, just remember not to max out on the full value of your home – that is, to leave something for yourself, as you may need it in the future.

Use the money wisely

If you’re planning to Mortgage refinance home loans for longer periods of perhaps 20 or 30 years, it should make sense if you spend the cash bonus on something that’s also lasting, such as a useful renovation to your home or a non-cosmetic surgical procedure that isn’t covered by your healthcare plan.

Thus, think long and hard before you spend the cash on that 8-cylinder SUV or a trip to Vegas – you wouldn’t want to have to pay for that vehicle or three nights in Vegas for about 20 years or so now, would you?

What to ask lenders about refinance home loans

Always clarify details about the interest rate and whether it’s fixed or adjustable, closing costs, a loan’s qualifying guidelines, the number of points you have to pay, the documents you need to provide the lender, your application processing time, and if there are any prepenalty payments.

By: Bob Cohen