What is Loan to Value?
January 17th, 2009 Posted in Real EstateIf you are in the process of refinancing your home loan or applying for a new purchase home loan, you will probably encounter the term “Loan to Value,” LTV. You may wonder how does LTV determine the size of my loan, and what are the consequences of having a high LTV?
Simply stated, the LTV ratio is the amount of money you borrow compared with the price or appraised value of the home you are either purchasing or refinancing. For example, with a 95% LTV loan on a home priced at $400,000, you could borrow $380,000, and you would have to pay a $20,000 down payment, along with any points and loan fees required to obtain the loan.
Lenders like to see LTV’s at 80% or below… The lower the LTV, the more protection the lenders have against potential loss in case of a default on the loan. Because of this, LTV’s higher than 80% usually require mortgage insurance.
There are two forms of mortgage insurance involved in home loans. First, there is an upfront mortgage insurance fee of approximately 1.5% of the loan amount, which can usually be financed and added to the loan amount, and then there are smaller monthly mortgage insurance premiums that will need to be paid until the home has gained at least 20% equity in the form of appreciation and/or principal payments accrued.
If you would like to search the MLS for listings in and around Paso Robles, visit my website. If you have any real estate questions or general questions about Paso Robles or San Luis Obispo North County, please contact me via email or call me at (805) 235-0234 for more information.
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Tags: appraised value, loan to value, LRV, mortgage insurance, paso robles, principal, refinancing