Homeowners Have Options for Loans

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. Of course, any unpaid amount in the original loan will have to be deducted from the computed total value.

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. 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.

The lender will often examine the credit score of the homeowner to find out if he is qualified for the 125 secured loan. The lender usually sets a threshold value for the credit score in the attempt to minimize his risk exposure. 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. 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 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? 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. 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.