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 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. Of course, any unpaid amount in the original loan will have to be deducted from the computed total value.
The existence of 125 secured loans is quite astonishing because a substantial part of the loan is not covered by a collateral. What this means is that the extra 25 percent is risky for the lender. 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 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. Also, the owner cannot deduct the interest charges for the 25 percent extra loan amount from his income as a basis for computing taxes. For more real estate funding alternatives check out http://hardmoneylendersonline.com.
February 24 2010 10:49 am | Uncategorized
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