Securing any type of loan when you have bad credit can be frustrating and unfruitful. The first thing, a potential lender wants to know about you is - your credit score. All homeowners can attest to the loads of paperwork that one must complete in order for mortgage brokers to pull your credit file. Your credit report dictates your interest rate, points and other loan fees.
The past 5 years have been good to homeowners across the country. Even homeowners who have seen a slight depreciation in their home's appraised value, still have at least 5% or 10% home equity.
A 125% home equity loan is a second mortgage loan that allows you to take cash out of your home. For Example: Your existing mortgage loan is $200,000. You can take out a $125% home equity loan ($200,000 * 125%) to get $50,000 cash to pay off outstanding debts, finance your kids' college education, refurbish/renovate your home, etc. Whatever you reason may be for needing cash - the equity is there to work for you.
If you have a credit score below 600 or just slightly above, you will have to use a subprime home equity loan lender. A subprime 125% home equity loan will have a higher interest rate since the lender is taking a greater risk with you, than with someone who has a great credit score.
The best thing to do when looking for a subprime home equity loan lender, is to get quotes from multiple lenders. Be honest when you complete your application. If your credit score is 485, 550, 600, 620 - don't lie. A subprime lender will still be willing to work with you to find the best loan program.
All subprime mortgage lenders are not made equal so you need to compare the following:
1. How much cash can the lender offer based on your credit score ($10,000, $15,000 or $25,000)?
2. What will your interest rate be?
3. What will your loan fees be? (These can include application fees, documentation courier fees and other extraneous fees).
4. Will you have to pay points on your loan. Paying points may allow you to get a lower interest rate but you will have to pay more in upfront fees.
5. Is there a pre-payment penalty?