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100 LTV home equity loan: You have real options

Peter Warden
The Mortgage Reports contributor

In this article:

  • LTV means loan-to-value or the amount of your home’s current value that you’re allowed to borrow against
  • Very few lenders offer 100-percent LTVs on home equity loans
  • However, there are other ways to effectively borrow up to 100 percent of your property’s value

You may see a lot of articles when you search for the term 100 percent LTV home equity loan (HEL). But, when you click through, you find that they just say you can’t get one. This article explains that there are ways to get the financing you need, and where to look.

Verify your new rate (Nov 20th, 2018)

What is a “100 LTV home equity loan?”

LTV stands for loan-to-value ratio. That’s the percentage of the current market value of the property you wish to finance. So a 100 percent LTV loan is one that allows you to borrow a total of 100 percent of your property value.

Related: Home equity loan vs home equity line of credit (HELOC)

When you already have a mortgage against your home, and you want to borrow additional cash, you might take out a home equity loan. It’s also called a “second mortgage” because you still have your first mortgage.

Suppose that your home is worth $150,000, and your mortgage balance is $100,000. A 100 LTV home equity loan would give you $50,000 in cash. Your loan balances would equal your property value.

Calculating your LTV and the value of your home

To know how much you can borrow and the LTV that represents, you first need to know how much your home is worth. You can get an idea in various ways:

  • Using an online valuation model (AVM) like Realtor.com or Trulia
  • Searching public records for recent sales of comparable homes in your neighborhood — adjust for differences between your property and those
  • Picking the brains of a friendly real estate agent

Related: What’s my house worth (4 ways to determine your property value)

Understand that this is a rough estimate. Your lender will almost certainly require an appraisal to come up with your property value. Also, understand that most lenders will not lend against more than 80 or 90 percent of your property value.

100 percent home equity loan is not (quite) a pipe dream

You may think your chances of finding a 100 LTV home equity loan are roughly similar to your glimpsing a unicorn or a squadron of flying pigs. But they’re a bit better than that. Not much, but a bit.

When, in August 2018, The Mortgage Reports did a search for lenders that were offering a 100 LTV home equity loan, we found two within a few minutes. KeyBank and Bank of Oklahoma.  Both are in the Federal Deposit Insurance Corporation’s database of banks.

Related: LTV explained in plain English

And one of them says it offers its product with “no closing costs.” (Those two links worked at the time of writing but the lenders may have changed the offers or discontinued them by the time you click through. Search for alternatives.)

Two swallows do not a summer make. And the Federal Trade Commission advises, “The amount that you can borrow usually is limited to 85 percent of the equity in your home.”

Some downsides

Just because a bank advertises a product, that doesn’t necessarily mean many consumers will qualify.  From a lender’s point of view, a 100 LTV home equity loan represents a pile of risk. If home prices fall even a bit, the lender is likely to lose if it has to foreclose on the loan.

Related: VA cash-out 100 percent refinance guidelines

Inevitably, lenders do their best to moderate those risks, usually with these methods:

  1. Having a very high approval threshold for applicants — You’ll likely need excellent credit, little in the way of other debts, and a good and secure income that leaves you plenty of spare money at the end of each month
  2. Charging a high-interest rate or fees — Those will compensate it for the losses it may make on bad loans

As a rule, HELs with low LTVs come with lower interest rates than those with high ones.

Think laterally

If you can’t get approved for a 100 LTV home equity loan, or the deal you’re offered is too expensive, don’t give up. Depending on your needs and circumstances, and what you’ll spend the money on, there may be alternatives:

FHA 203(k) program for home improvements — This refinance uses the projected value of your home after you’ve made improvements as the basis for your LTV

VA cash-out loans — The Veterans Administration allows 100 percent cash-out refinancing. To be eligible, you must be a service member, a veteran or in a qualifying group (e.g. a widow or widower of someone eligible)

Reverse mortgages (a.k.a. home equity conversion mortgage or HECM) — Homeowners 62 and up can access their equity in this novel way. One of these provides a monthly income for as long as you live in your home. Over time, you may even get more than the property’s value. And you never have to make payments

Related: HECM reverse mortgage: Who should consider it?

Shared appreciation agreements — these allow you to borrow against your future home equity. For instance, you might borrow $10,000 against your $100,000 house, while agreeing to repay the loan balance plus 25 percent of any property value increase in, say, five years. (It’s all negotiable.) If your home value goes up by $12,000, you’ll repay $13,000.

Considering your options

Each of these comes with its own pros and cons. You can only use an FHA 203(k) loan for a set list of home improvements. You may not be eligible for a VA loan or reverse mortgage — and one may not suit you if you are. And a shared appreciation agreement means you’re signing away a share in what’s probably your biggest asset.

Still, it’s important to explore all your options before you finally choose your form of borrowing. After all, you’re putting your home on the line. And that’s a process into which it’s worth investing some time for thinking and researching.

Verify your new rate (Nov 20th, 2018)