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Homeowners with little, or no home equity, may
have an option to get a home equity loan from certain lenders
who can lend up to 100% of value for a rate and term
refinance, or a cash out loan. However, high loan to value
equity loans have become difficult to find. See
FHA loans
The key to getting a high loan to value loan
is having a credit score that is 700 or better. Also,
there may be a residual income
requirement, which means a borrower must have an income
with a minimum of $4,000 per month after subtracting
all the debts, including the mortgage payments.
The maximum loan is determined by using the
current appraised value, and subtracting the existing first
mortgage balance, which is also subject to meeting the debt ratio requirement. If the home has
been owned for less than 12 months, this type of loan program
may not be available.
Expect the rates to be much higher than a
conventional home equity loan, because the lender will factor in
the higher risk to offset a potential default. Also,
there is no tax benefit for interest paid.
100% home equity loans have an inherent risk
involved, meaning
that if you decide to sell your home, there would be no
equity to cover any closing costs or real estate commission,
and there may be a balance due for costs not
paid from the sale.
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