These are a good idea if the 25% overage is going to be used to increase the value in your home!

You may not be able to deduct the interest paid on the portion of your loan which is greater than the value of your home. Consult your tax specialist for more information.

It is more common to have a second mortgage or Home Equity Line of Credit (HELOC) that is equal to 125% of your home value.

If you are in a hot market were your home is appreciating at a rapid pace then this loan would not put you in as much risk than if you were in an area or economy where the appreciation was moving slowly.

You can expect to recieve a higher interest rate for these loans, becuase of the high risk to the lender.

125% LTV loans are only for borrowers who believe that their home will be worth at least 25% more when it comes time to sell it, unless they have other means to cover the difference.

When you're rehabbing or remodeling your existing home, the 125% loan makes sense because you're tapping the future equity of your home.

Not many investors offer this program anymore. It was a popular loan in the late 90's until about 3 years ago. However, it is still available with select lenders. You need to have excellent credit to qualify for this program since the risk to the lender is high.

Homeowner Tax Tips - Deducting Mortgage Interest. Mortgage interest on a primary residence is usually fully tax-deductible, unless your mortgage balance exceeds $1 million or you took out a mortgage for reasons other than buying, building or improving a home.

To claim this deduction, you should fill out Schedule A, labeled “itemized deductions.” Your lender should send you a “Form 1098” that tells you how much mortgage interest you paid for the year. You should record your interest deduction on line 10.

Late payment charges also may be deducted as home mortgage interest if not for a specific service received in connection with your home loan. The same is true for mortgage prepayment penalties - if you pay off your mortgage early and incur a prepayment penalty, you can deduct that penalty as home mortgage interest (subject to the same requirements for late payments).

Deducting Loan Points Paid on a Purchase. The points you pay on a purchase mortgage are deductible the year you made the purchase. You can deduct any points you paid — and that a seller paid on your behalf* — if you meet the following criteria:

* The loan is secured by your primary residence and the loan was used to buy, improve or build the home.
* Paying points (and the amount of points paid) is not an irregular practice in the seller's geographic area;
* The points are computed as a percentage of the loan principal;
* The points are clearly delineated on the buyer's settlement statement; and
* You put cash into your home purchase in an amount at least equal to the points you were charged.

As always, you should check with your tax advisor to determine
which of these deductions apply to you!

Your tax professional may advise you that interest on the amount of your loan exceeding 100% of the value of your home will not be deductible on your tax return.

When you obtain a lower interest rate, you will have less to deduct on your income tax return. That may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage.

Deducting Interest on a Home Equity Loan. The interest on a home equity loan may be tax deductible up to $100,000. However, if your home equity loan when combined with your first mortgage amount, increases the debt on your home to an amount more than the property's actual value, there may be deductibility limits. Usually, you can deduct the smaller of interest on a $100,000 loan or your home's value less the amount of your existing mortgage.

Many borrowers elect to have impound or escrow accounts. In this case, the borrower’s payment exceeds the amount necessary to pay the principal and interest. The amount over this goes into an account used to pay property taxes, homeowner’s insurance and possibly mortgage insurance. When calculating your property tax deduction, do not deduct what you pay into the impound account. You are allowed only to deduct what is paid from the impound account to the property taxing authority.

*Seller Paid Points are Deductible by the Buyer. When a seller pays points for the buyer (or in other words, buys the mortgage rate down) the buyer gets a lower mortgage rate.

Have you refinanced more than once in recent years? Many homeowners have and may have overlooked an important opportunity. Say, for example, you refinanced in 2001 and paid points. You can deduct 1/30th of those points in that tax year. However, rates continued to drop, so you refinanced again in 2003, paying off that 2001 loan. The remaining points from the 2001 refinance — that is, those that haven't yet been deducted — can now be deducted in full since that loan has been paid off.

Deducting Loan Points Paid on a Refinance. If you refinanced last year, you may be able to write-off any points you paid to buy down the mortgage rate. To do so, you deduct the points proportionately over the life of the new loan. For example, if you took out a 30-year loan, you would deduct 1/30th of the points you paid each year.

Deducting Real Estate Taxes. Real estate taxes, which are annual taxes based on the assessed value of a property, also are tax deductible. Your mortgage interest statement may list the amount of real estate taxes you paid if your taxes and homeowners' insurance were placed in an escrow account when you closed on your mortgage. If real estate taxes aren't included, you could review your cancelled checks to determine your total real estate tax deduction.

RESPA - Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

RESPA required disclosures:

At the time of loan application

When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers:


1. a Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only) and

2. a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use a particular settlement provider, then the lender must disclose this requirement on the GFE.

3. a Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.

RESPA requires lenders to give prospective borrowers a booklet on "the nature and costs of real estate settlement services" and a good faith estimate of likely settlement costs. Then, at closing, the borrower and seller receive a settlement sheet (the "HUD-1"), which itemizes the costs paid in connection with the purchase of the home. RESPA also prohibits both giving and receiving anything between providers of settlement for the referral of business.

RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application.

If the lender turns down the loan within three days, however, then RESPA does not require the lender to provide these documents.

The RESPA statute does not provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. However, bank regulators may choose to impose penalties on lenders who fail to comply with federal law.

RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA.

The Real Estate Settlement Procedures Act (RESPA), enacted by Congress In 1974 to address problems in the real estate settlement process. Numerous amendments and revisions have been made to RESPA during the last 30 years. The Department of Housing and Urban Development is empowered to enforce and promulgate the rules and regulations of RESPA. The statutes of RESPA applies only to 1 to 4 family homes. It does not govern transactions involving apartment and commercial buildings.

The disclosures RESPA requires lenders and others to give you estimates that make it easier to analyze loans and services. Some disclosures outline typical costs and servicing policies, others force settlement participants to disclose affiliations.

When you apply for a loan, the lender or mortgage broker is required to give you a Good Faith Estimate of the loan-related expenses that will be due at closing. The estimate must be mailed or given to you within three days of your loan application unless the lender turns down your application during that period.

RESPA was intended to provide consumers with information about their real estate mortgage transaction and the costs associated with it to forbid specific practices, such as referral fees between settlement service providers, that result in higher costs and reduced service to consumers. Mandates the disclosure of all closing costs, lender servicing and escrow account practices, business relationships between closing service providers and other parties to the transaction. The RESPA statute covers mortgage loans on one-to-four family residential dwellings. Including most purchase loans, assumptions, refinances, home improvement loans, and (heloc) equity lines of credit.

RESPA was intended to provide basic consumer protection, for the prevention of kickbacks and insuring proper disclosures.

These laws were inacted to protect the consumer against predatory lending.