125% Home Loans?

The Basics of 125 Percent Home Loans

If you need a home equity loan, but don’t have equity built up in your home, then a 125 percent home loan may be perfect for you. This type of second mortgage allows you to get more out of your home than you currently have built up. It is a great home loan for newer homeowners who need to make improvements on their home or consolidate bills.

A 125 percent mortgage allows you to borrow up to 25% more than the current value of your home. If you have just purchased a $200,000 home and still owe $200,000 you would be able to borrow up to $50,000. You will owe more than your home is worth, which is risky, but many homeowners have a need for this type of loan.

This type of second mortgage is offered by many lenders, both online and in your neighborhood. Each individual lender will have their own specifications and guidelines for approval. Generally, though, you will need a good credit score and good payment history on your current mortgage. Your credit score will also determine the amount of your second mortgage. Remember, you can qualify for up to 25%, but the lender is not obligated to give you that full amount. Some lenders may also require that you be in your home for a certain amount of time before applying for a 125 percent loan.

Generally, you won’t have to obtain a property appraisal to obtain a 125 percent second mortgage. The lender will use the purchase price of your home if you have been in your home for less than 12 months. If you have been in your home for longer than that, a drive-by appraisal or a recent tax assessment should be sufficient for your home loan.