Alternative Loan Options for Homeowners
Lenders have started to offer only recently 125 secured loans to homeowners who want to get a second mortgage. These loans offer a new option for obtaining a second mortgage for houses. This kind of loan allows the homeowner to be given a loan amount that is 1.25 times the home’s appraised value. Compare this to the home equity loan that only offers an amount that is 0.75 to 0.80 times that of the appraised price. The borrower must realize, however, that any outstanding balance on the previous loan will have to be subtracted.
The existence of 125 secured loans is quite astonishing because a substantial part of the loan is not covered by a collateral. In effect, the lender is exposing the extra 25 percent to risk because it will not have a collateral attached to it. To compensate for the added risk, the lender will charge higher interest rates and this is one of the disadvantages of this type of home equity loan. It is, therefore, advisable for the homeowner to seek expert advice before sealing the deal because as we will find out later there are other downsides to this kind of loan.
To determine whether a particular borrower is eligible for the 125 secured loan, the lender looks at his credit score. It is usually the case that a minimum credit score will be required by the lender to try to increase the chances that the borrower will be able to pay the loan. He will also look into how long the homeowner has been living in that particular home to be able to estimate the appraised value. It is usually a requisite that the owner has lived in that house for at least three months.
In the case where duration of the owner’s stay in the house exceeds one year, the lender will examine the tax assessments to come up with the appraised value. If the owner has been staying in that home for about one year, the lender will use the purchase price as basis for calculating the loan amount. Sometimes an Automated Value Model or AVM is provided by a computer that bases its calculations on the prices of similar houses within that particular neighborhood where the home in question is located.
What about the other disadvantages of 125 secured loans aside from higher interest rates? The homeowner should realize that he might find it difficult to sell the house because he would have to pay the 25 percent extra amount to the buyer. Aside from that, he would not be allowed to consider the interest that he pays for the 25 percent extra amount as expenses when preparing his income tax returns. For more real estate funding alternatives click here.
Tags: 125 loan, hard money, private loan, secured loan
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