In order to qualify, your credit score must be high.  Since a 125 loan isn’t based on the equity you’ve built (or lack thereof), your credit score will be used to determine your ability to repay.  If your score is low, you’ll need to improve it before applying.

Once you qualify, be prepared for high interest rates.  You’re being lent a significant amount more than the actual value of your home, so your lender is taking a much bigger risk than usual.  On top of high payments and high interest rates, you don’t get a break on your taxes.  You can’t write off interest payments related to loans that are more than 100%.

Perhaps the worst consequence of a 125 home equity loan is when you want to sell your house.  You now officially owe more than your home is worth, and good luck selling it for 125% of its value.  Even in a good market, it’s highly unlikely to receive that much, and the housing market is definitely still in a slump.

If you’re going to use the money from your loan to pay for something that will greatly benefit you (such as paying off outstanding credit debts or other loans) or that will raise the value of your home (such as renovations), and you are absolutely positive you can meet all of your payments, then don’t be afraid to consider a 125 loan.  Just make sure you are aware of the risks (such as being unable to sell your home or losing your home entirely), and read the fine print, since each lender may have different requirements and restrictions.

For more informaiton on a 125 Home Equity Loan, visit LendingTree

Homeowners can offer private mortgages when they’re trying to sell their homes but might be having a difficult time doing so.  An arrangement like this can benefit both the seller and the buyer.  The buyer that wouldn’t qualify for a bank loan can get the house they really want, and the seller is able to actually sell the house.

The title is not transferred to the buyer here until the loan is paid off, but you as the buyer can use this time to build equity while improving your credit history.  This is good for the seller, too, because if you default on the loan, the seller regains full possession of the house and can sell it again, all while keeping the money that the buyer has paid so far.  Not necessarily a great deal for you, but it provides a little insurance for the seller.

The downside to choosing a private mortgage from the home seller or another third party lender is the interest.  Rates can be outrageously high.  The home seller is interested in protecting their investment, and third party lenders tend to use private mortgages as ways to make money—they want a profit from the loan they’ve given you.  If your credit score is low, they might raise the interest rate even higher still.

If a private mortgage seems to be your only real option for buying a home, consider all the pros and cons.  If you decide to go forward, make sure you find a lender that is credible and trustworthy.  Otherwise, you can always work on improving your credit score so that you can eventually qualify for a conventional loan with good rates.