125% Home Equity Mortgage Loans
Home Equity Loans Explained
A home equity loan is a loan based on the market value of one's home or investment property, minus the amount of debt owed on the property. Home equity loans can be used for a myriad of purposes - usually whatever the borrower wants - and are secured using the property as collateral. Thus, if your home is worth $200,000, and you owe $100,000 on it, then you could take out a traditional home equity loan for up to $100,000.
Finding the Best 125% Home Equity Loan
Let's say, however, that you want to borrow a bit more than the amount reflected in this equation. In that case, you might be best served by a 125% home equity loan, which is just what it sounds like - a home equity (or second mortgage) loan that allows you to borrow up to 25% more than the value of the property minus the amount owed.
To determine the property's value, 125% home equity loan lenders will not necessarily require a property appraisal. Instead, if you purchased the property within the last year, lenders will usually just use the purchase price as the property's value. If you have owned the property for more than a year, mortgage lenders could use a variety of methods, ranging from a simple drive-by evaluation, to recent tax assessments, to an automated value model (a computer-generated estimation based on similar properties in the area).
Home Equity Loan Rate
125% fixed rate home equity loans are offered by a variety of online and traditional lenders, all with different requirements, but generally such mortgage loans are offered only to those borrowers considered most “stable” - in other words, borrowers with a steady income and a positive credit score. Most lenders require a certain minimum credit score to even consider offering a 100+ loan; furthermore, the amount of additional funding offered usually depends on that credit score. In short, the better your credit score, the more money you'll be able to borrow, up to 25% over the equity contained in the property. Thus, while other factors may be taken into account - income, length of time in the home, etc. - 125% loans are generally what's known as “credit score driven.” For this reason, those seeking a bad credit home equity loan are less likely to qualify for a 125% loan. Finally, most 125% home equity lenders require borrowers to have owned the property for a certain length of time - usually at least three months.
Fixed Rate Home Equity Loans
As always, potential borrowers should spend some time researching various loan options and lenders to find the best, fastest home equity loan available to them.
