December 31st, 2017 8:56 AM by Jackie A. Graves, President
What is LTV?
loan-to-value (LTV) ratio is a financial term used by lenders to describe the
ratio between the value of your home loan and the home’s value, and represent
the first mortgage line as a percentage of the total appraised value of your
calculate your LTV, divide your loan amount by the home’s appraised value
or purchase price.
Why your LTV Ratio is important
will evaluate your loan-to-value ratio while they are underwriting your loan.
In general, borrowers with lower LTV ratios will qualify for lower mortgage
rates than borrowers with higher loan-to-value ratios. Borrowers who have a
lower loan-to-value ratio are considered less risky to lenders because they
have more equity in their homes. In the eyes of a lender, borrowers with a
lower loan-to-value ratio, and thus more equity in their homes, are less likely
to default on their mortgage, and even if they did default, the lender would
have a better chance of selling the home in foreclosure for at least as much as
they are owed for the mortgage.
loan-to-value ratio will also determine whether you have to pay private
mortgage insurance. For conventional loans, borrowers who want to
avoid paying private mortgage insurance will need to make a down payment of 20
percent of the value of the home. FHA purchase loans will
allow you to have a loan-to-value ratio of up to 96.5 percent. USDA, VA and
other specialty loan types may allow for a 100 percent LTV for a purchase loan.
with an extremely high loan-to-value ratio are considered “upside-down” on
their mortgage, i.e., the value of their house is less than their loan amount.
Although this is not ideal, you may still be able to refinance. Special
refinancing programs exist for borrowers with a loan-to-value ratio over 100
percent. The most common high loan-to-value refinance program is the HARP
Refinance program. If you have a FHA loan and have a high loan-to-value ratio,
you may be eligible for a FHA
streamline loan. You can shop for FHA streamline loans on Zillow.
For information on other high loan-to-value loan programs please check out our underwater mortgage page.
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