125% Secured Loans Are Not for Everyone

As you probably are aware, if you are looking around at 125% secured loans and planning to get one for your mortgage, the chances are that you will eventually find a lender who is willing to lend you money under such an arrangement.  However, you need to be cautious when taking out a 125% mortgage loan as you are actually borrowing 125% of the current value of your home.

In some cases, 125% secured loans, in comparison to your typical mortgage loans can work out to your advantage, as in the case of where you want to improve your home.  If the improvements add value once they are completed, then your loan will fall into acceptable “loan to value” standards.  For example, an appraisal (or in the UK, a property valuation) is always required by a lender before granting a mortgage.  This appraisal establishes the loan to value ratio.  The appraiser will take in consideration the value of any improvements you are doing and issue an “as completed” value on your home.  What this means is once the improvements can be validated as completed and finished, the new value established is now the current marketable value of your home.  Your ratios then fall into line.

There are many other types of loans that can be used for this purpose also that may be a little less expensive.  A 125% secured loan is particularly expensive as they tend to be more risky to the lenders. Typically the people who borrow under this type of program have less than perfect credit and at times even have poor credit.  Local banks and credit unions will more than likely not offer these programs, so you will have to seek out the lenders that do.

Currently because of the high foreclosure rate, lenders are somewhat cautious in regard to the products they use. They have also tightened up their credit standards and will typically lend to only those who they have a previous history with or who have good credit.

The loan will also have to make sense and have a good purpose such as improving your home.  You also need to show the ability to repay the debt comfortably.  So the lender will be looking for a stable job history and a proven source of income.  Usually, they ask for a two year history of income as represented by two years of income tax returns in addition to current pay stubs.  They may even call your employer to get a comfortable reference that you are a valued employee.

125% secured loans aren’t for everyone, but they can make sense in the right circumstances.

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