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

Home equity loans are perfect for homeowners who need money for home repairs, paying off credit cards, or paying for a child’s education. Home equity loans allow homeowners to borrow money using their home’s equity as security or collateral. These loans are different from refinancing a home. Refinances create a new mortgage, and homeowners are subjected to high closing costs and other fees.

Benefits of Home Equity Loans

Home equity loans are an attractive alternative because the process is much quicker than refinancing. On average, homeowners receive funds within a week. Furthermore, fees are minimal. Those who refinance their home to receive cash-out at closing can expect to pay thousands of dollars in closing costs. On the other hand, refinancing is a great option for individuals who purchased their homes when interest rates were high.

How Does a Home Equity Loan Work?

When a person acquires a home equity loan, the money borrowed is based on their home’s equity. Equity is the difference between a home’s worth and the amount owed to the lender. For example, $35,000 owed on a property valued at $60,000 has an equity of $25,000. Thus, the owner of this property may obtain a loan for up to $25,000. The money borrowed can be used to start a business or pay the balance on credit cards and student loans. Of course, home equity loans must be repaid. Therefore, borrowers should be able to handle an additional monthly payment. Defaulting on a first or second mortgage has serious consequences.

Refinancing Home Equity Loans

Unfortunately, home equity loans carry a higher interest rate. In some cases, homeowners may also receive an adjustable rate. Adjustable rates are risky because the interest rate may rise throughout the duration of the loan. Individuals in this situation may consider refinancing their home equity loan. Refinancing a home equity loan creates a new mortgage which combines the original loan amount and the second mortgage. Thus, instead of making two monthly payments for a $35,000 first mortgage and a $25,000 second mortgage, homeowners will make a single monthly payment for a new mortgage of $60,000.

By: Carrie Reeder

With the current “mortgage meltdown” we hear so much about these days, your average consumer thinks that the days of 100% financing have gone by the wayside. True, you are hard pressed these days to find a bank or lender that will want to carry a second mortgage that combined with a first mortgage adds up to 100% financing. That’s because if there is a default, sitting in second lien position is particularly dicey. Too much risk is involved. And since, in recent history, that scenario of the 80/20 combo was the most common 100% financing vehicle available to a certain group of consumers (non first time homebuyers), there’s a misconception out there that 100% options are all but dried up.

But, a-ha! There is hope for someone who has great credit but prefers to invest his/her assets elsewhere when rates are so low. It’s called the Flex 100. And it can apply to purchases and refinance transactions.

I heard an analyst mention on television the other day that mortgage money is so cheap right now it’s like a sale at Macy’s. That made me chuckle, but it’s true. In which case, why not invest your money elsewhere if you qualify for 100% financing. After all, the homes are still appreciating in most areas, but not at the stellar rate we saw in the past.

The Flex 100 requires you to invest $500 of your own cash towards the transaction, so I guess it’s technically not 100% financing, but it’s pretty darn close. And no, you don’t have to be buying your first home to get this deal. You can actually have owned a home in the past three years! However, it does apply to financing your primary residence only. You can’t get this deal for that nice cabin in Gatlinburg you want to use on the weekends or for that great rental down the street you think you can get a good deal on. You’ve got to live in the house to qualify for this financing.

But you can do a refinance, as long as it’s not a “cash-out,” meaning you’re not paying off debt or taking equity out of the property. It must be a rate term refinance only. However, you can pay off that second mortgage or home equity line of credit you hate, IF you obtained that 2nd lien mortgage when you got your first mortgage (a piggy back closing, we call it). Or to make it clearer, you originally had that 80/20 combo mentioned earlier. If you got that home equity mortgage a month or two after your initial closing to build a deck or payoff a credit card, than it that won’t work for a Flex 100 refinance.

What about your credit score? Well, it will affect the price you get, but there is no “minimum” credit score required for this program. You just have to get an approval through the automated underwriting system required. But be realistic – if you’ve got “iffy” credit, you probably won’t get an approval. A borrower with a credit score below a 620 would probably have to have a low loan to value or debt to income ratio for a chance of an approval.

A Flex 100 may or may not make sense for you. But hey, at least you know it’s an option. Your lender should be able to help you determine if this opportunity to flex your mortgage muscle makes sense for you.




By: Kristin Abouelata – Home Loans