Loan-to-Value (LTV) Ratio

Loan-to-Value Ratio (LTV) is a critical term in the mortgage lending industry. It is the ratio between the mortgage loan amount and the appraised value of the property. It’s a key indicator of risk for lenders. An LTV ratio is calculated by dividing the loan amount by the property’s value. For example, if you’re borrowing $90,000 for a home valued at $100,000, the LTV ratio is 90%.

The Importance of LTV for Lenders

LTV is crucial for lenders as it determines the level of risk associated with the loan. A high LTV ratio indicates a higher risk, as it suggests the borrower has less equity in the property. Typically, lenders set maximum LTV limits, and borrowers must meet these to qualify for a loan.

Impact of High Loan-To-Value Ratio

A higher LTV often results in higher interest rates, as it’s considered a riskier loan. If the LTV is high, lenders may also require the borrower to purchase Private Mortgage Insurance (PMI), adding to the cost of the loan. PMI protects the lender if the borrower defaults on the loan.

LTV: Lender Preferences and Special Programs

Most lenders prefer an LTV of 80% or lower, offering the best interest rates to these applicants. In contrast, higher LTV ratios lead to more expensive loans for borrowers. Certain programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow LTV ratios up to 97%, but they require PMI until the ratio drops below 80%.

Grow Your Business

As a mortgage broker, your clients rely on your expertise to find them the best deals. Our Quick Pricer tool can be an invaluable asset in your quest to secure the most advantageous mortgage rates. Be sure to explore our Programs section for additional resources tailored to your needs. If you have specific scenarios in mind, don’t hesitate to request them; we’re here to assist you. And if you’re interested in joining forces to provide even more value to your clients, consider becoming a partner with us. Together, we can empower individuals and families to achieve their dreams of homeownership.