Loan to Value

by Wilshire Finance Partners

The loan-to-value, or LTV, ratio means the amount of money a lender is willing to lend relative to the appraised value of a property. The LTV ratio is one of the primary risk factors that lenders assess when qualifying borrowers for a mortgage. As the LTV ratio of a loan increases, the qualification guidelines generally become stricter. The ratio is determined by dividing the sales price or appraised value into the loan amount, expressed as a .percentage.

For example, a 90% LTV loan that means 90% of the home´s price and will have a 10% down payment (or equity if you´re refinancing). An LTV is used as a guideline to figure out if it is a high-risk loan candidate. The higher the LTV, the more risk is taken. Also, if your LTV is over 80%, the lender may require Private mortgage insurance (PMI).

Example: How to calculate Loan to Value ratio?

Step 1
• Property´s purchase price $350,000
• Your down payment - $ 30,000
• Your loan amount = $320,000

Step 2
• Your loan amount $320,000
• Property´s purchase price ÷ $350,000
• LTV = 91%