Loan to Value Ratio

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Loan to Value Ratio

When you are out searching for your dream home, it is important to know just how much house you can afford. Financial institutions that offer home loans will pre-qualify you to make sure you are considering houses that you realistically stand a chance of winning loan approval for. One of the things lenders consider is the loan to value ratio, or LTV. The LTV ratio is the amount of money a home buyer borrows to purchase a home versus the appraised value of the home. The higher the LTV ratio, the less money a home buyer has to put down on the property. For example, a home buyer would need to make a down payment of $10,000 on a $100,000 home at 90% LTV. Higher LTV ratios mean the lender is taking on more risk by lending the money to the buyer. Lenders almost universally require mortgage insurance on loans with LTVs above 80%. If you are paying mortgage insurance, keep in mind as soon as you build at least 20% equity (either through the miracle of appreciation or by actually paying the loan down), you are eligible to stop paying mortgage insurance. For more information on mortgage insurance and LTVs, visit The site offers a wealth of information on mortgages, including a variety of mortgage calculators.



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