Secrets Your Mortgage Broker Will Not Tell You

Like it? Share it!

Facebook

Pinterest

Reddit

Twitter

Google+

Loan-to-Value Ratio

Source: https://i2.wp.com

The lender also looks at the loan-to-value ratio  (LTV) or the loan amount expressed as a percentage of the home’s value. In a purchase, the lender will use the lower of the appraised value or the contract price. If someone borrows $130,000 to purchase a $150,000 house, the LTV ratio is 130,000/150,000 or 87%. If the LTV is higher than 80%, the borrower will have to pay mortgage insurance. There is risk involved in default for the lenders. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become more strict. The mortgage insurance protects the lender from the buyer’s default. But it increases the costs of the mortgage.