Alternative Loan Options for Homeowners
A recently invented financial alternative for homeowners who need a second mortgage are the 125 secured loans. Homeowners now have a new financial alternative for getting a second mortgage on their homes. This is a type of home equity loan that permits the borrower to get a loan amount that is equivalent to 125 percent of the appraised value of his property. 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 benefits provided by 125 secured loans are indeed surprising because what this means is that the 25 percent extra loan amount is not secured. In effect, the lender is exposing the extra 25 percent to risk because it will not have a collateral attached to it. To try to make up for the additional risk, the lender will ask for a higher interest for the loan value. The borrower would be wise to consult some experts on the matter before proceeding with the loan because there are also other disadvantages that will be seen later.
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. The length of stay of the borrower in that particular house will also be an important factor for the lender. 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. For that case where the length of stay is more or less one year, it would be the purchase price that would be the basis for the appraised value. Sometimes the lender will utilize computer estimates using the Automated Value Model (AVM) that is dependent on similar purchases of homes within that specific neighborhood.
What are the other downsides of 125 secured loans aside from more interest charges? 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.
