In case if you are a homeowner in need of a home equity loan
but you have not yet built up any equity in your home, don't
despair. Believe it or not a 125 percent equity home loan may
be the answer.
It is worth mentioning in this regard that a 125 percent equity
home loan is a second mortgage loan that allows you to borrow
up to 25% more than the value of your home. For example, it
is worthwhile remembering that if your home is worth $100,000
and you owe $100,000 on the mortgage, this loan program would
allow you to still borrow up to $25,000.
In an ideal scenario the 125 percent equity
loan is offered by various online lenders. As a matter
of fact each lender has their own qualification and loan term
guidelines but generally this is a credit score driven loan
program. Point to be noted in this regard is that the credit
score driven means that you have to have a certain credit score
to qualify for the loan. In addition, always remember that your
credit score usually determines the maximum loan amount you
may qualify for and the maximum cash in hand you may receive.
Also, take into perspective that some 125 percent equity
loan lenders may require seasoning on the length of time
you have lived in your home. In simple terms three months is
normally the minimum.
If experts are to be believed when it comes to a property appraisal,
most 125 percent home equity loan lenders do not require you
to obtain one. Theoretically speaking they generally will use
the purchase price of your home as the value if you have lived
in your residence for 12 months or less. On the other side of
the coin if you have lived in your home over 12 months, a recent
tax assessment, simple drive-by appraisal, or automated value
model (avm) can be used. It is worth pointing that an avm is
a computer-generated assessment of your home's value that is
based on recent home sales of comparable houses in your neighborhood.
Fact remained that option adjustable rate mortgages (ARMs) were
created in 1981 and for years were marketed to well-heeled home
buyers who wanted the option of making low payments most months
and then paying off a big chunk all at once. For them, there
is no denying that option ARMs offered flexibility. However,
it is worthwhile remembering that as housing prices skyrocketed,
option ARMs became the only way people could afford to buy a
house due to the very low initial mortgage payments and low
According to experts the option ARM home loan is also known
by several names like pick-a-pay loan, pay option ARM, payment
option mortgage and deferred interest loan. This is because
of the simple reason that it offers several payment choices--a
negative amortization minimum payment option, an interest-only
option and two fully-amortized payment options, one being based
on a 30-year loan and other a 15-year payment option. In addition
what most people don't know is that it is also known as a negative
amortization (neg-am) loan.
Believe it or not the problem is that most home owners who financed
their purchase loan or mortgage refinance with option ARMs choose
to make the minimum payment option. It is worth noting that
roughly 75% of borrowers with option ARMs are currently electing
to make the minimum payment, according to UBS AG.
In an ideal scenario one of the least known facts about option
ARMs is that getting a second mortgage behind these neg am loans
can be extremely difficult. Theoretically speaking a negative
amortization loan places a second mortgage lender in a more
precarious position than when loaning behind any other type
of loan. Thats why, a neg am can hold you hostage because very
few lenders will go behind a negative amortization 1st. Furthermore
it is worth pointing that lending underwriters calculate the1st
mortgage balance by gross up balance 115% or 125% depending
upon the mortgage note, so you should consider whether you may
need a second mortgage before you get a payment option mortgage
with a 1% start rate.
The question now arises: How can you get out of an option ARM
(neg am) loan so you can get a second mortgage In simple terms
depending upon the credit score you may need to refinance your
negative amortization 1st and then get a new home equity loan
(second mortgage) so you can refinance debt and maybe even get
a cash-out second mortgage for home improvement, investing in
a second home or taking care of other expenses. On the other
hand if you choose to refinance, you should start exploring
your options about six months before your loan changes.
Point to be noted in this regard is that a no income verification
home equity loan is a second mortgage loan that does not require
you to provide income documentation to qualify for the loan.
In an ideal scenario this type of loan is great for homeowners
who need a home equity loan but have hard to document income.
If experts are to be believed the majority of borrowers with
hard to document income are either self-employed or commission
based employees. Fact remained that consumers who fall under
these categories may have high income but have a lot of business
related deductions that they write off on their taxes. There
is no hiding the fact that this is good on the one hand as it
reduces the taxable income and thus the amount of taxes owed,
however, when it comes to getting a home equity
loan it can hurt as most lenders use the average of your
last 2 years taxable net income (the amount left after all of
your deductions) to determine your income figure for qualifying
purposes. More often than not this may cause you to have a debt
to income ratio problem if you have a high debt load and thus
keep you from qualifying for the loan. Furthermore it is worthwhile
remembering that with a no income verification home equity loan,
however, your gross income can be used for qualifying purposes
as opposed to the net income.
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