How to Calculate Loan-To Value Ratio
Simlpy put, The Loan-to-Value ratio, or your "LTV Ratio" as it is known to in the industry is the mortgage loan amount or mortgage balance divided by the purchase price or the current appraised value of your home. When calculating it, you will wind up with a precentage which is your LTV Ratio.
Let's try one on for size here by calculating this LVT Ratio:
Loan Amount $ 400,000
Property Value $ 500,000
Loan-to-Value Ratio (LTV): 80%
In the above model we would divide $ 400,000 by $ 500,000 to come up with a loan to value ratio of 80%.
This means that the borrower has a loan for 80% of the property value with the remaing 20 percent beinng the equity left in the home.
Your Loan-to-Value ratio is one of the three major concerns in determining whiat interest rate you might get. The other two items are your credit scored and your debt-to-income ratio
Lower LTV Ratio Means More Ownership, Less Risk and a Better Interest Rate
Essentially, the lower your Loan-To-Value ratio is, the better, as it mean you have greater ownership in your property. Those with more ownership are less likely to fall behind on their mortgage payments or go into foreclosure, as they have more to lose if they do not make the payments.
With Conventional loans the LTV threshold is 80% or less as you will not be required to have private mortgage inurance. Those with a LTV of 80.01% or greater will typically have higher costs as their is greater risk with to the lender.
Should you be confused or would like to talk through a LTV Ratio you have do not hesitate to call me at 631-589-3600 and speak with me directly or one of my team members or email me at david.bailey@themortgageoutlet.org
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