125 Secured Loans as an Option for Homeowners
Lenders have started to offer only recently 125 secured loans to homeowners who want to get a second mortgage. Homeowners now have a new financial alternative for getting a second mortgage on their homes. 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 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. The length of stay in that home should be at least three months for the owner to be considered eligible.
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 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? It would be hard to sell the property because the extra 25 percent amount that is not secured by the home would have to be paid. 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.
