No Equity Home Loan

A no equity home loan is sometimes referred to as a 125% loan. This caters to homeowners that do not have any equity in their house because they received 100% financing in the original purchase or because there is a second mortgage on the home. No equity home loans are relatively new and risky because the lender takes the second or sometimes third position on a lien against the house. This form of assistance does exist, but the borrower may have to pay a higher interest rate for this type as opposed to the low interest rates typically associated with an equity home loan.

Appraisal and balance of the original mortgage will have to be completed in order to receive a no equity home loan. The homeowners FICO score is also taken into consideration. The FICO score is the Fair Issac and Company score which is a number based on credit reporting history, credit balances, credit limits and the like. Credit reporting agencies such as Equifax, Experian, and TransUnion figure these scores and when a credit check is done by a lender or other business offering credit to the borrower, they receive a personal FICO score. If the FICO score is low, a consumer can either be denied for the no equity home loan, or they may be offered a high interest rate.

FICO scores directly determine interest rates in most cases. If the borrower has a high FICO score, they may be approved for no equity home loans, and offered a lower interest rate. They are granted at up to 125% of the house value. For example: A house is worth $200,000. The borrower still owes $200,000 through a first mortgage and any other mortgages combined. If the borrower applies for assistance, and qualifies, they may receive up to $50,000. This is 125% minus the balance owed on the house.

If the borrower cannot qualify for no equity home loans, they may have to wait and have the house appraised in 6 months to see if it has gone up in value. These loans are not designed for poor credit borrowers. Usually a house that has been appraised for more than the price the homeowner paid will qualify for a no equity home loan. It would be wise for interested consumers to contact local lending institutions such as banks, credit unions, or a local mortgage brokerage to get specific information. These lenders will be able to answer questions and advise consumers on the best choices to make in this situation. Having patience will be very important in this entire process. "And the servant of the Lord must not strive; but be gentle unto all men, apt to teach, patient" (2 Timothy 2:24).

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