{"id":12525,"date":"2010-03-28T10:43:29","date_gmt":"2010-03-28T16:43:29","guid":{"rendered":"http:\/\/template.lenderama.com\/?p=612"},"modified":"2010-03-28T10:43:29","modified_gmt":"2010-03-28T16:43:29","slug":"calculating-loan-to-value-ltv","status":"publish","type":"post","link":"https:\/\/dev203k.orbitwebx.com\/dev203k\/calculating-loan-to-value-ltv\/","title":{"rendered":"Calculating Loan-to-Value (LTV)"},"content":{"rendered":"

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Understanding the definition<\/a> of Loan-to-Value (LTV), how to calculate it and how it impacts a mortgage approval<\/a>, will help you determine what type of loan amount and program<\/a> you may qualify for.<\/p>\n

Since the LTV<\/a> is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.<\/p>\n

The LTV Ratio is calculated as follows:<\/strong><\/p>\n

Mortgage Amount divided by Appraised Value of Property<\/a> = Loan-to-Value Ratio<\/p><\/blockquote>\n

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.<\/p>\n

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For Example:<\/strong><\/p>\n

Sally qualifies for a 96.5% Loan-to-Value FHA<\/a> program, which means she’ll have to bring in 3.5% as a down payment.<\/p>\n

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.<\/p>\n

$96,500 (Mortgage Amount) \/ $100,000 (Purchase Price) = .965 or 96.5%<\/p><\/blockquote>\n

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance<\/a> required to protect the lender from default.<\/p>\n

On a conventional loan<\/a>, mortgage insurance is usually required if you have an LTV over 80%.\u00a0 (one loan is more than 80% of the home’s appraised value)<\/p>\n

On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance,<\/a> or call your lender to restructure the payment.<\/p>\n

…..<\/p>\n

Frequently Asked LTV Questions:<\/h2>\n

Q:\u00a0 Why do the lenders care about Loan to Value?<\/strong><\/p>\n

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.\u00a0 Also, with a lower LTV the lender will lose less money in case of a foreclosure.<\/p>\n

Q:\u00a0 Can I drop my mortgage insurance on an FHA loan?<\/strong><\/p>\n

The mortgage insurance on an FHA<\/a> loan is structured differently than a conventional<\/a> loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.<\/p>\n

Q:\u00a0 What does CLTV stand for?<\/strong><\/p>\n

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
\n(1st Mortgage Amount + 2nd mortgage amount) \/ Appraised Value of Property = CLTV<\/p>\n

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Related Articles – Mortgage Approval Process:<\/h2>\n