# How to Calculate Your Loan to Value Ratio

Mortgage and Lending with FHA, VA, Jumbo, Downpayment Assistance, Conv. NMLS #276329

You already know that lenders review your finances when you apply for a mortgage. Thatâ€™s why you submit the loan application, providing a complete picture of your financial situation. This allows the lender to assess the risk of the loan, making sure that you can reliably make the monthly mortgage payments.

It gets a little more complicated when you dig into all the things your lender has to review, many of them required based on the type of loan program youâ€™re using to finance your home.

One calculation that pops up in many loan programsâ€™ requirements is a threshold for the loan-to-value (LTV) ratio. We will explain what the LTV ratio measures, why itâ€™s important, and how it can impact your loan and monthly payments.

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to-value ratio is an assessment of how much money youâ€™re borrowing compared to how much the property is worth. This is commonly expressed as the mortgage or loan amount (MA) divided by the appraised property value (APV).

To give you an example of how LTV ratios are used in the mortgage approval process, we can calculate one together. Letâ€™s say you are purchasing a home that appraises at \$500,000. If you take out a mortgage for \$425,000, youâ€™ll divide \$425,000 into \$500,000, giving you an LTV ratio of 85%. This percentage is what loan programs are referring to when they list LTV ratio requirements.

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## How LTV Ratios Impact Your Mortgage

Your LTV ratio is just one factor in the loan approval process. Lenders also review your credit score, payment history and reliability, your income, assets, and more.

But your LTV ratio is important to understand because it can have an impact on your interest rate and monthly mortgage payment.Â Loan programs usually have thresholds that trigger higher interest rates when your LTV ratio surpasses a certain percentage.

In addition to interest rate implications, LTV ratios above 80% typically result in you having to purchaseÂ private mortgage insuranceÂ (PMI), which is rolled into your monthly payment. So, while a higher LTV ratio doesnâ€™t necessarily mean you wonâ€™t qualify for your loan, it can mean that youâ€™ll end up paying more in interest and PMI over the life of the mortgage. If your sales price is higher than your loan amount so that you can meet LTV ratio requirements, that difference has to be paid in cash at closing as part of your down payment.

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## LTV Ratio Requirements for Common Loan Programs

Now that you know how to calculate your LTV ratio and how it can impact your homeownership costs, the next step is understanding the LTV requirements of common loan programs.

This will help you budget for your next home and get a rough estimate of how much you should expect to pay as a down payment.

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## Whatâ€™s a Good LTV Ratio Range?

As youâ€™ve learned, this simple calculation can play a big role in determining what loan program you can qualify for and how much youâ€™ll pay for the cost of your loan.

With the variety of loan programs out there, you might wonder how you can decide what a good LTV ratio will be for you and how much you should expect to put as a down payment.

That answer will be different for everyone.Â You have to take into account your personal financial goals and your budget. In general, you can save on the interest rate and other loan costs if your LTV ratio is 80% or lower, but that doesnâ€™t mean that will be the best option for every buyer.

The best way to figure out the right LTV ratio range for you is to review your loan options holistically, comparing the requirements of the different loan programs you can qualify for and the financial impact of each of them.

Posted by

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Lisa Perry,Â Senior Loan Officer

"YourÂ Northern VA Mortgage Specialist"

540-273-2733

NMLS ID #86548Â / 276329

Email:Â Â LPerry@fhmtg.com

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Â Proudly Serving Washington DC, Virginia & Maryland

Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

This is an excellent post with great information. Thanks for sharing it.

Have a super fantastic week!
Joe Jackson, Realtor-KWCP

Jun 14, 2023 05:50 AM
Bo Zivak
Zivak Realty Group - Nashville, TN
Nashville Real Estate Broker

Thanks for this post, it's really very helpful for us.

Jun 14, 2023 06:28 AM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Lisa, your explanation of the Loan to Value (LTV) ratio is an excellent resource for anyone navigating the mortgage process. Your clear and concise breakdown of how to calculate LTV and its impact on loan terms and payments demystifies an important aspect of home financing. Sharing this knowledge empowers buyers to make informed decisions and understand the financial implications of their mortgage options. đźŹˇđź’ˇ #StayMotivated #FinancialAwareness

Nov 28, 2023 07:26 PM