What does "Loan-to-value ratio (LTV)" mean?

Definition

The loan-to-value ratio, or LTV, is a number that compares the amount of your mortgage to the appraised value of the home. A higher LTV, typically over 80%, may require you to pay private mortgage insurance.

Understanding LTV in Mortgages

LTV comes into play when you're applying for a mortgage. It helps lenders assess risk. A lower LTV often means less risk. In simple terms, it's the property's worth compared to the loan amount. Example: If a home is valued at $100,000 and the loan is $80,000, the LTV is 80%. It's not the only factor lenders use to decide on a loan application. It doesn't guarantee approval or specific loan terms, but it's an important piece of the puzzle.

People Want To Know

What is the loan-to-value ratio in LTV?

The loan-to-value ratio (LTV) is calculated by dividing the amount of your mortgage by the appraised value of the home. For example, if you have a $200,000 mortgage on a home valued at $250,000, the LTV would be 80%. An LTV over 80% usually requires private mortgage insurance (PMI).

What is the 3 7 3 rule in mortgage?

The 3-7-3 rule in mortgage lending states that your total housing expenses should not exceed 30% of your gross monthly income, your total monthly debt payments should not exceed 36% of your gross monthly income, and you should have at least three months of reserves to cover mortgage payments.

What is a good LTV ratio for a mortgage?

A good loan-to-value ratio (LTV) for a mortgage is 80% or lower. An LTV above 80% often requires private mortgage insurance (PMI), which adds to your monthly costs. Lower LTV ratios can lead to better loan terms and lower interest rates.

What does 80% LTV mean?

An 80% loan-to-value (LTV) ratio means that you are borrowing 80% of the appraised value of the home. For example, if the home is valued at $300,000, you would have a mortgage of $240,000. An LTV over 80% usually requires private mortgage insurance (PMI).

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