Loan-to-Value Ratio for Mortgage | LTV Definition and Examples

What does LTV mean?

Your “ loan to value proportion ” ( LTV ) compares the size of your mortgage loan to the value of the base .
For exemplar : If your home is worth $ 200,000, and you have a mortgage for $ 180,000, your LTV ratio is 90 % — because the lend makes up 90 % of the sum price .
You can besides think about LTV in terms of your down payment .
If you put 20 % down, that means you ’ ra borrowing 80 % of the home plate ’ s rate. So your LTV proportion is 80 %.

LTV is one of the independent numbers a lender looks at when deciding to approve you for a home purchase or refinance .

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Why loan-to-value ratio matters for home buyers

Yout LTV ratio is important as a home plate buyer because it ’ south one of the main criteria mortgage lenders use to determine your eligibility for a loan .
typically, buyers with lower LTV ratios are more likely to :

  • Get approved by mortgage underwriting
  • Qualify for lower interest rates
  • Avoid paying private mortgage insurance premiums (on conventional loans)

Keep in heed, flush paying half a percentage lower interest rate can equal lower monthly mortgage payments — and over the life sentence of the lend, that could amount to thousands of dollars in savings .

What’s a good loan-to-value ratio?

by and large, 80 % LTV is considered a good loan-to-value ratio. If you ’ rhenium buy a home plate, you achieve an 80 % LTV by making a 20 % polish payment .
Homeowners with an 80 % LTV do not have to pay for private mortgage indemnity ( PMI ). And they typically qualify for lower interest rates. So there are substantial perks to making a big down payment and getting your LTV to 80 % or lower .
however, you can qualify for a mortgage loanword with an LTV much higher than 80 %. In some cases, evening a 100 % LTV is allowable ( meaning you make no depressed payment at all ) .

LTV for home buying vs. refinance

Lenders use loan-to-value calculations on both buy and refinance transactions. But the mathematics to determine your LTV changes based on the type of lend .

  • Home purchase LTV is based on the sales price of the home — unless the home appraises for less than its purchase price
  • Refinance LTV is always based on the appraised value of the property, not the original purchase price of the home.

Loan-to-value is particularly important when using a cash-out refinance, as the lender ’ s maximum LTV will determine how much equity you can pull out of your dwelling .

How to calculate your loan to value ratio

Calculating your loan-to-value is dim-witted. All you do is take your loanword amount and divide it by the buy price — or, if you ’ rhenium refinance, watershed by the survey value. then breed by 100 to get your LTV ratio .
(Loan Amount / Purchase Price or Appraised Value) X 100 = LTV
The loan-to-value ratio is always expressed as a percentage. thus if your resultant role is 0.75, for case, your LTV is 75 % .

Loan to value ratio examples

here are a few examples to illustrate the concept of loan-to-value for mortgages .

Example 1: LTV for a home that appraises above its purchase price

When you buy a home that appraises for more than the buy price, your loan to rate proportion is based on the buy price preferably than the marketplace prize of the property .

  • House price: $100,000
  • Appraised value : $110,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • 80,000 / 100,000 = 0.8
  • LTV ratio: 80%

Example 2: LTV for a home that appraises below its purchase price

If you ’ re buy a home and the survey measure of the place is lower than the purchase price, your LTV is based on the survey value rather. This will lead to a higher LTV proportion .

  • House price: $100,000
  • Appraised value : $90,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • 80,000 / 90,000 = 0.89
  • LTV ratio: 89%

Example 3: LTV for a mortgage refinance

a long as you don ’ t have a second mortgage on your family — like a family fairness lend or home equity agate line of credit rating ( HELOC ) — LTV is calculated the lapp for a refinance as for a home leverage .
fair remember, you ’ ll use the measure rate of your home quite than the purchase price .

  • Home value: $100,000
  • Loan balance: $80,000
  • Equity: $20,000
  • 80,000 / 100,000 = 0.8
  • LTV ratio: 80%

What are CLTV and HCLTV?

When you refinance with a moment mortgage secured by the property, the lend to value calculation is a little different. You ’ ll have one or two new ratios to consider :

  • CLTV (Combined loan-to-value) measures your first and second mortgage combined against your appraised home value. CLTV applies to both home equity loans and home equity lines of credit
  • HCLTV (High combined loan-to-value) measures your highest possible loan to value ratio, including any untouched balance on your second mortgage. HCLTV applies only if you have a HELOC

here ’ s how each one is calculated .

CLTV: Refinancing with a home equity loan

Calculating CLTV is relatively bare. You add your first and second mortgage balances together, and separate this come by the home ’ sulfur appraised value .
See below how the LTV differs from the CLTV .

  • Home value: $100,000
  • Loan balance: $80,000
  • Second loan balance : $10,000
  • Equity: $10,000
  • 80,000 / 100,000 = 0.8
  • LTV ratio: 80%
  • (80,000 + 10,000) / 100,000 = 0.9
  • CLTV ratio: 90%

HCLTV: Refinancing with a home equity line of credit

When you refinance with a dwelling equity line of credit, a lender will consider your wax irregular mortgage in its LTV calculation — evening if you haven ’ metric ton withdrawn the broad amount available to you .
Because of this, you actually end up with three measures of your loan-to-value .
The standard LTV ; the CLTV, which combines your first gear mortgage with the measure you ’ ve withdraw from your second mortgage ; and the HCLTV, which considers your full foremost and second mortgage balance, careless of the total you ’ ve indrawn .
“ CLTV and LTV are the most important to understand, ” says Jon Meyer, The Mortgage Reports lend adept and licensed MLO .

  • Home value: $200,000
  • Loan balance: $100,000
  • Available second loan balance: $80,000
  • Amount of second loan drawn out: $40,000
  • Equity: $20,000
  • 100,000 / 200,000 = 0.5
  • LTV ratio: 50%
  • (100,000 + 40,000) / 200,000 = 0.7
  • CLTV ratio: 70%
  • (100,000 + 80,000) / 200,000 = 0.9
  • HCLTV ratio: 90%

Whether you ’ rhenium buy or refinance, your lend ’ second loan-to-value is significant because it helps to determine your mortgage rate and your loanword eligibility .

Why LTV is important in real estate

LTV is important when you buy a home plate or refinance because it determines how hazardous your loanword is .
The more you borrow compared to your home ’ second value, the “ riskier ” it is for lenders. That ’ second because if you default on the loan for some reason, they have more money on the line .
That ’ mho why all mortgages have a maximum LTV to qualify. The maximum loan-to-value can besides be thought of as a minimum down requital.

For case, the popular FHA lend program allows a down payment of just 3.5 %. That ’ s the like as saying the plan has a soap LTV of 96.5 % — because if you make a 3.5 % down payment, the most you can borrow is 96.5 % of the base monetary value .

What is a good loan to value ratio?

When qualifying for a mortgage lend, an 80 % loan-to-value proportion is ideal because it minimizes a lender ’ randomness risk of losing money if the borrower defaults. That ’ second why home buyers with 20 % down, and an 80 % LTV, get particular perks like avoiding mortgage indemnity .
“ From a lender ’ randomness position, a lower LTV is constantly well, ” says Meyer .
But — and it ’ s a big but — it doesn ’ thymine always make sense to aim for 80 % LTV. Because a 20 % down requital is plainly not accomplishable for many home buyers, particularly first-time home buyers .
consequently, a good loan-to-value ratio depends on your home buy goals. For one person, 100 % might be a good LTV. For another, 70 % might be ideal .
Here’s what to consider.
If your goal is to make a small down requital and buy a home preferably, front for one of these mortgage programs with high LTV ratio allowances :
If your goal is to avoid higher interest rates, get the lowest monthly payment on your loan, or minimize your overall lend close costs, you should aim for a lower LTV. This normally means getting a ceremonious mortgage with 10 % -20 % down .

Four high-LTV loans for home buyers

There are a count of lend programs specifically geared toward homeowners with high LTV ratios. There are even some programs which ignore loan-to-value all in all .
here is a brief review of the more common high-LTV loan types .

1. VA loan: up to 100% LTV allowed

virginia loans are guaranteed by the U.S. Department of Veterans Affairs .
VA lend guidelines allow for 100 % LTV, which means that no down payment is required for a VA loanword .
The catch is, VA mortgages are only available to certain home plate buyers, including :

  • Active-duty military service persons
  • Veterans
  • Military spouses
  • Members of the Selected Reserve or National Guard
  • Cadets in the U.S. Military
  • Air Force or Coast Guard Academy members
  • Midshipman in the U.S. Naval Academy
  • World War II merchant seamen
  • U.S. Public Health Service officers
  • National Oceanic & Atmospheric Administration officers

Learn more about the benefits of 100 % LTV VA finance here .

2. USDA loan: Up to 100% LTV allowed

department of agriculture loans are insured by the U.S. Department of Agriculture. USDA loans allow for 100 % LTV, with no down payment required .
many besides know the program as “ Rural Housing. ” You can find department of agriculture loans in rural parts of the country, but besides in many suburbs .
Learn more about USDA finance and how to qualify here .

3. FHA Loan: Up to 96.5% LTV allowed

FHA loans are insured by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development ( HUD ) .
FHA mortgage guidelines require a downpayment of at least 3.5 %. Unlike VA and USDA loans, FHA loans are not limited by military background or location — there are no special eligibility requirements .
FHA loans can be an particularly commodity equip for first-time base buyers and buyers with less-than-perfect credit scores .

4. Conventional loan: up to 97% LTV allowed

conventional loans are guaranteed by Fannie Mae or Freddie Mac. Both groups offer 97 % LTV buy mortgages, which means you will need to make a downpayment of 3 % to qualify .
conventional 97 loans are available via most mortgage lenders, and secret mortgage indemnity ( PMI ) will often be required on lead of your monthly mortgage requital .
As compared to an FHA loan, conventional loans to 97 % LTV are advised for homeowners with eminent accredit scores. In most other cases, FHA loans are preferred .

Four high-LTV mortgage refinances

High-LTV mortgages can be simpler for refinance transactions than they are for purchases. Multiple union agencies make no appraisal or streamline refinance programs available to U.S. homeowners .

1. FHA streamline refinance

The FHA Streamline Refinance is a especial refinance broadcast for homeowners with FHA mortgages. official guidelines for the FHA Streamline Refinance forfeit appraisal requirements, which means the home ’ mho LTV doesn ’ triiodothyronine topic — a well thing if your place measure did not increase .

2. VA streamline refinance

The VA Streamline Refinance is a special refinance plan for homeowners with existing VA home loans. The official name of the VA Streamline Refinance is the Interest Rate Reduction Refinance Loan ( IRRRL ). It ’ second sometimes called the VA-to-VA loanword .
similar to its FHA cousin, the VA Streamline Refinance does not require an appraisal, nor does it require the verification of income, employment or credit .

3. USDA streamline refinance

The USDA Streamline Refinance is available to homeowners with existing USDA mortgages only. Like the FHA and VA streamline programs, the USDA refinance waives the need for a home appraisal. The broadcast is presently in fly phase, and available in 19 states .

4. Mortgage relief refinance

Over the years, there have been a act of mortgage relief refinance programs designed to help homeowners who are subaqueous on their loans .
Being ‘ subaqueous ’ means you owe more on the home than it is presently deserving. As a result, your LTV is over 100 % .
For example, imagine you have a mortgage out for $ 150,000 on a dwelling that ’ mho besides worth $ 150,000. But your home loses respect, and is now worth merely $ 125,000. Your newfangled loanword to value ratio is 120 % .
Having an LTV above 100 % would normally disqualify you from refinancing. But with a special mortgage easing program, you can refinance an submerged home into a lower rate to make your mortgage more manageable .
You can read about current mortgage relief refinance programs here .

Find out if you qualify for a mortgage

Loan-to-value is the ratio of how a lot you ’ ra adopt compared to the rate of your home. It ’ s a dim-witted formula, but it ’ s the basis for most mortgage lend .
once you know your LTV, you can figure out which mortgages you ’ re probable to qualify for — and which lender offers the best rates for your site.

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Category : Finance

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