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What Is Loan-To-Value Ratio?

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What Is Loan-To-Value Ratio? FREEDOM MORTGAGE® What is loan-to-value ratio? Why loan-to-value ratio is important An important number when you are buying or refinancing a home LTV is used as a measure of a loan's risk. Customers with a lower LTV have more equity in their homes, are considered at less risk to default, and may qualify for lower interest rates or better Loan-to-value ratio (or "LTV") is a percentage calculated by dividing the dollar amount of the terms. mortgage loan by the value of the home securing the loan. Better mortgage choices are not the only way a lower loan-to-value ratio can save you money. LTV Freedom Mortgage uses LTV to help determine whether you qualify for a loan. For example, can also determine if you need to buy private mortgage insurance (PMI). If you make a down some mortgages have a maximum loan-to-value ratio of 80%. This means your LTV can be no payment of less than 20% on a conventional loan, you will need to pay PMI. This insurance pro- greater than 80% if you want to qualify for that loan. tects lenders against customers defaulting on their mortgages. PMI is added into your monthly mortgage payment. We also use LTV to help decide what interest rate and other terms we may offer. As a result, your loan-to-value ratio can affect whether you get a mortgage and how much you pay for it. Ways to buy a house with higher loan-to-value ratios How to calculate loan-to-value ratio FHA loans are designed to help those with moderate incomes or less money for a down payment become homeowners. You may be able to buy a house with a down payment as low as 3.5% of the When we calculate LTV, we use the appraised value of the home to estimate the home's value. purchase price. There are limits on loan size and you will have to pay a mortgage insurance premi- The appraised value is not always the same as its purchase price, which is important to under- um however. stand when you are buying a home. Veterans, active duty service personnel, and surviving spouses may be able to buy a home with a For example, let's say you want to buy a home for $200,000 and make a down payment of 0% down payment if they qualify for a VA loan. The benefits of these loans include lower mort- $40,000. This means you will need a mortgage for $160,000. Take the mortgage amount and gage interest rates and no private mortgage insurance. divide it by the sale price to get the loan-to-value ratio. That is … Freedom Mortgage is committed to helping Americans achieve the dream of homeownership. $160,000 ÷ $200,000 = .08 or 80% Would you like to speak to one of our loan specialists about your options? Then call 877-220-5533 or visit our Get Started page. However, let's say your appraisal states the home is worth only $190,000. That means the loan-to-value calculation is now $160,000 ÷ $190,000 = 0.84 or 84%. If your mortgage requires a maximum LTV of 80%, you may need to increase your down payment, re-negotiate the price with the seller, or take other steps to reduce your loan-to-value ratio. Lenders like Freedom Mortgage may also look at your loan-to-value ratio when you refinance. We may need an appraisal to determine a home's current value or we may accept other estimates of how much it is worth. FREEDOM MORTGAGE® Why loan-to-value ratio is important LTV is used as a measure of a loan's risk. Customers with a lower LTV have more equity in their homes, are considered at less risk to default, and may qualify for lower interest rates or better Loan-to-value ratio (or "LTV") is a percentage calculated by dividing the dollar amount of the terms. mortgage loan by the value of the home securing the loan. Better mortgage choices are not the only way a lower loan-to-value ratio can save you money. LTV Freedom Mortgage uses LTV to help determine whether you qualify for a loan. For example, can also determine if you need to buy private mortgage insurance (PMI). If you make a down some mortgages have a maximum loan-to-value ratio of 80%. This means your LTV can be no payment of less than 20% on a conventional loan, you will need to pay PMI. This insurance pro- greater than 80% if you want to qualify for that loan. tects lenders against customers defaulting on their mortgages. PMI is added into your monthly mortgage payment. We also use LTV to help decide what interest rate and other terms we may offer. As a result, your loan-to-value ratio can affect whether you get a mortgage and how much you pay for it. Ways to buy a house with higher loan-to-value ratios How to calculate loan-to-value ratio FHA loans are designed to help those with moderate incomes or less money for a down payment become homeowners. You may be able to buy a house with a down payment as low as 3.5% of the When we calculate LTV, we use the appraised value of the home to estimate the home's value. purchase price. There are limits on loan size and you will have to pay a mortgage insurance premi- The appraised value is not always the same as its purchase price, which is important to under- um however. stand when you are buying a home. Veterans, active duty service personnel, and surviving spouses may be able to buy a home with a For example, let's say you want to buy a home for $200,000 and make a down payment of 0% down payment if they qualify for a VA loan. The benefits of these loans include lower mort- $40,000. This means you will need a mortgage for $160,000. Take the mortgage amount and gage interest rates and no private mortgage insurance. divide it by the sale price to get the loan-to-value ratio. That is … Freedom Mortgage is committed to helping Americans achieve the dream of homeownership. $160,000 ÷ $200,000 = .08 or 80% Would you like to speak to one of our loan specialists about your options? Then call 877-220-5533 or visit our Get Started page. However, let's say your appraisal states the home is worth only $190,000. That means the loan-to-value calculation is now $160,000 ÷ $190,000 = 0.84 or 84%. If your mortgage requires a maximum LTV of 80%, you may need to increase your down payment, re-negotiate the price with the seller, or take other steps to reduce your loan-to-value ratio. Lenders like Freedom Mortgage may also look at your loan-to-value ratio when you refinance. We may need an appraisal to determine a home's current value or we may accept other estimates of how much it is worth. FREEDOM MORTGAGE® NOTES & REMINDERS.
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