125% Home Equity Loan

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125% Home Equity Loan Explained

125% Home Equity Loans

A 125% home equity loan is, in essence, a second mortgage on your home. As a homeowner, you may be eligible for a home equity loan if you have either built up equity in your home or put enough down on your home to have existing equity. Most lenders don't allow you to take out more than 100% of the value of your home. So, for instance, if your home was worth 200K and your loan was for 125K, you would have 75K in equity. This is the amount you would most likely qualify for in a home equity loan. With a 125% home equity loan, the borrower seeks to take out an additional 25% of the value of the home or 125K (75K in built up equity and 50K additional).

125% Home Equity Loan: A Thing Of The Past?

It should be noted that after 2007 when the mortgage crisis hit the U.S. housing markets, the 125% home equity loan has become extremely difficult, if not impossible, to acquire. The reason? Lenders are simply not willing or able to extend these loans based on the expectation of higher future home values.



Loan Requirements

Most 125% home equity lenders require the homeowner to obtain an appraisal on the property, however, not all of them do. Some lenders do a drive by appraisal for borrowers who have maintained residency in your home in excess of twelve months. This will help determine both the 125% equity home loan value and the 125% equity home loan rate.

The 125% Loan – Where to Find It

The 125% loan, or home improvement loan was offered by numerous lenders prior to 2007. Each lender had a specific standard of qualifications and term conditions. In general, a borrower’s credit score determined the chance of approval and the value of the 125% second mortgage loan. Many 125% home equity lenders required borrowers to have lived in their homes for at least three months before applying for these loans.   

Lenders made these loans because they assumed that the property would appreciate at least 25% above the current loan amount. In fact, prior to 2007, there were certain mortgage lenders who did nothing but 125% home equity loans. But with the mortgage crisis and the significantly lowered home values, these second mortgage loans became a thing of the past. Of course, there is always a chance that these loans will return if American home values begin to increase at a good clip.