125 Home Equity
by Rachelle
A 125 home equity can help first time buyers who would like to consolidate debt or who would like to simultaneously finance their new home along with some home upgrades. In such cases, a 125 home equity loan is often a flexible solution.
What Is 125 Home Equity?
125 home equity is simply borrowing 125 percent of the value of your home. Sometimes this is done through a single mortgage lender and sometimes this may involve a 125 second mortgage. Sometimes 125 home equity refers to a single fixed rate 125 home equity loan and sometimes it refers to variable interest rate 125 home equity line of credit (HELOC).
125 LTV Home Equity Loans
When you borrow 125 percent of the value of your home with a single lender, you have a 125 loan-to-value ratio, LTV ratio.
125 CLTV Home Equity Loans
When you use a second mortgage to cover the full 125% home equity, the combined value of both mortgages should have a 125 CLTV or 125 combined-loan-to-value.
Who Would Use A 125 Home Equity Loan?
The two main reasons people desire 125 percent home equity are debt consolidation and home improvement.
125 Home Equity
Even though 125% home equity loans often have high interest rates relative to mortgages, they’re often still low compared to credit card interest rates and other debts. Thus it is often advantageous to roll debt like auto loans, student loans, medical expenses as well as credit card debt into a 125 home equity loan to reduce your monthly payment and make a single payment rather than four separate payments (these three debts plus your mortgage).
This can work both for first time buyer and for existing homeowners looking to refinance.
The second reason is simply to get some cash for major upgrades to your home or life. This might include some new furniture, a landscaping overhaul or that new addition to the den. Keep in mind that isn’t free money: you’re taking a gamble that your finances will remain sound enough to pay this loan off while the value of your home simultaneously increases.
As I’m sure you have noticed, this hasn’t always been the case in the last couple years. 125 home equity loans have contributed to the subprime lender crisis. This is because people with bad credit and bad debt often seek 125 home equity loans to consolidate their debt and minimize their monthly expenses. Unfortunately, many of those people were already in too deep and lenders were too lenient in accepting them.
Where Do You Obtain A 125 Home Equity Loan?
While I suggest you begin local with banks and credit unions, you will more likely find it easier to obtain a 125 home equity loan through an online resource. However, this comes with risk. There are all kinds of people trying to exploit the desperate online. Be extremely cautious and meticulous when sharing your credit and financial data online. You should be particularly cautions of people attempting to sell you 0 down home loans.
So if you can find someone willing to work you in person first. If you’re not familiar with credit union, I urge you to consider a 125 home equity second mortgage with one to get a sense for what it’s like to work through a credit union instead of a bank. You might find yourself pleasantly surprised with the service and lack of fees you’ll experience with a credit union.
You definitely should be skeptical of spectacular offers from people or organizations that haven’t very specifically considered your credit, debt ratio and home value. All these must be weighed before an offer can be made, so until a bank or online resource knows this data about your particular case, it’s all just empty hype.
What If You Have Bad Credit?
It is becoming more difficult to obtain 125 home equity loans or 125 home equity lines of credit in the aftermath of the housing crash. And if you have bad credit, it may be all the more difficult to obtain either a 125 HELOC or 125 home loan. To put it bluntly, if you have bad credit and you initially bought your home with a no money down home mortgage, a 125 home equity loan may only dig you into a deeper hole. So please be careful.
But don’t let that stop you from trying. This is a chance to reduce your monthly debt and repair bad credit for good. One option is to obtain an FHA loan or an FHA insured mortgage. A 125 home equity FHA refinance is still a possibility. The first time home buyer tax credit and support from FHA (Federal Housing Administration) can still help you wrestle that bad debt down and obtain a 125 home equity loan.
125 Home Equity Loan Vs. 125 Home Equity Line of Credit (HELOC)
While a 125 home equity line of credit may provide more flexibility, keep in mind that abuse of HELOC was a key ingredient in the economic collapse related to the subprime lending crisis. If you obtain such a line of credit, you need to be deliberate and responsible in its use.
Beyond flexibility, I encourage you to obtain a fixed rate 125 home equity loan over a 125 HELOC. You will enjoy the security and consistency of one single stable monthly payment and it will force you to eliminate your excess debt up front. This is because once your loan is underwritten and complete, the bank will provide you with checks you must use for your other debts (for example, one might be written straight to your credit card company). This forces you to create clean slate and provides fewer opportunities for irresponsible abuse.
While I don’t like to encourage people to build more debt through programs like those that provide 125 percent home equity, the truth is that they’re an excellent option for people trying to rebuild their credit or for responsible people who really need address specific home improvements.