125 Home Improvement Loan
Making major home improvements can add significantly to the current value of your home. Unfortunately, no matter how big or small, they can be very costly. Most homeowners have to take out a loan in addition to their mortgage in order to finance their home improvement projects. In the past, home improvement loans combined with the original mortgage could not exceed more than 85% or 100% of the current value of the home, depending on your credit. However, in recent years some lenders have started to offer 125 home improvement loans, which allow homeowners to borrow up to 125% of the current value of their home.
As you might expect, a 125 home improvement loan can be more difficult to obtain than traditional home improvement loans. With the recent decline in the mortgage industry it is becoming increasingly more difficult. Lending institutions consider this type of home loan to be high risk because there are no guarantees that they can recover 100% of the loan if they have to foreclose on the home. If you are lucky enough to get approved for a 125 home improvement loan, the interest rates will be higher than normal because the loan to value ratio is so high. In other words, the amount of the loan exceeds the value of the home by 25%.
There are also heavy restrictions on what the funds from a 125 home improvement loan can be used for. The borrower is required to use all of the proceeds from the loan on home improvements. They can not be used to take a vacation or pay bills. In fact, many lending institutions require the borrower to provide professional building plans or blueprints that outline the intended improvements in order to verify what the funds are being used for.
125 home improvement loans can be a blessing or a curse depending on how well you utilize them. If you make the right renovations you could significantly increase the value of your home. Making the right home improvements could create enough equity in your home to be able to pay off the 125 loan and still make a profit if you were to sell. On the flip side, making the wrong renovations could cost you in the end. Although any renovations will improve the value of the home, it is possible that the renovations you make will not increase the value enough to even pay off the loan if you were to sell. You would be left owing money on the loan rather than making money on the sale of the house. Don't assume that that $30,000 worth of renovations will automatically increase the value of the home by $30,000.
125 home improvement loans are a viable option for making home improvements. However, they are not for everybody. The payments can be steep and the restrictions can be difficult to deal with. If you do decide to go for a 125 home improvement loan, make sure that you are financially prepared as well as informed about how to get the best return on your investment, which is your home.