![]() Example 1: LTV for a home that appraises above its purchase price ![]() Here are a few examples to illustrate the concept of loan-to-value for mortgages. So if your result is 0.75, for example, your LTV is 75%. The loan-to-value ratio is always expressed as a percent. (Loan Amount / Purchase Price or Appraised Value) X 100 = LTV Then multiply by 100 to get your LTV ratio. All you do is take your loan amount and divide it by the purchase price - or, if you’re refinancing, divide by the appraised value. How to calculate your loan to value ratioĬalculating your loan-to-value is simple. Loan-to-value is especially important when using a cash-out refinance, as the lender’s maximum LTV will determine how much equity you can pull out of your home. Refinance LTV is always based on the appraised value of the property, not the original purchase price of the home.When this happens, your home’s LTV ratio is based on the lower appraised value, not the home’s purchase price. Home purchase LTV is based on the sales price of the home - unless the home appraises for less than its purchase price.But the math to determine your LTV changes based on the type of loan. Lenders use loan-to-value calculations on both purchase and refinance transactions. In some cases, even a 100% LTV is allowable (meaning you make no down payment at all). However, you can qualify for a mortgage loan with an LTV much higher than 80%. So there are real perks to making a big down payment and getting your LTV to 80% or lower. And they typically qualify for lower interest rates. Homeowners with an 80% LTV do not have to pay for private mortgage insurance (PMI). If you’re buying a home, you achieve an 80% LTV by making a 20% down payment. Generally, 80% LTV is considered a good loan-to-value ratio. Keep in mind, even paying half a percent lower interest rate can equal lower monthly mortgage payments - and over the life of the loan, that could amount to thousands of dollars in savings. ![]() Avoid paying private mortgage insurance premiums (on conventional loans).Typically, buyers with lower LTV ratios are more likely to: Yout LTV ratio is important as a home buyer because it’s one of the main criteria mortgage lenders use to determine your eligibility for a loan. Why loan-to-value ratio matters for home buyers LTV is one of the main numbers a lender looks at when deciding to approve you for a home purchase or refinance. If you put 20% down, that means you’re borrowing 80% of the home’s value. You can also think about LTV in terms of your down payment. Your “loan to value ratio” (LTV) compares the size of your mortgage loan to the value of the home.įor example: If your home is worth $200,000, and you have a mortgage for $180,000, your LTV ratio is 90% - because the loan makes up 90% of the total price. ![]()
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