Home Mortgage Loan to Value

The mortgage resources found at BeatMybroker.com have a wealth of information relating to mortgages and calculating loan to value.

Loan to Value (LTV) is used as one of the determining criteria when a lender assesses the risk of extending a mortgage loan. The most common type of loan to value that borrowers are concerned with is mortgage loan to value. Simply put, mortgage loan to value is the ratio of your loan amount to the property value. Why is mortgage loan to value so important and how do you calculate it?

Loan to Value can have a severe impact on your loan qualification. Some lenders insist that there be a certain amount of equity in a property before they extend a loan. Other lenders and specialized programs (like FHA for example) only require that there be minimal equity in the transaction to extend the mortgage.

Probably the most common question regarding mortgage loan to value has to do with mortgage insurance. On a conventional mortgage (non-government loan), if your loan to value is greater than 80%, you will likely have to pay mortgage insurance. The insurance protects the lender in case of foreclosure.

How do you calculate Loan to Value?

Here are a couple examples showing you how to calculate loan to value. Remember, LTV is just the ratio of the loan amount to the property value.

Loan amount: 100,000

Property value: 200,000

100,000/200,000 equals .5 OR 50%

So the LTV in the above example equals 50%. Take a look at another example:

Loan amount: 180,000

Property value: 200,000

180,000/200,000 equals .9 or 90%

As you can see, calculating mortgage loan to value is very simple. If you are looking to purchase a new home or need to refinance an existing one, you should keep the following helpful points in mind:

· The lower your credit score, the tighter the LTV requirements will be (excluding government loans)

· Stay under 80% loan to value to avoid paying mortgage insurance

· On a purchase transaction, the loan amount and LESSER of the appraised value or purchase price of the home is used to calculate the loan to value

· Mortgage insurance decreases as you approach 80% LTV. For example, mortgage insurance is cheapest at 85% LTV, more at 90% LTV, and highest at 95% LTV.

· If you are above 80% LTV, a mortgage with lender paid mortgage insurance may be available