- Кредит для коэффициента стоимости — определение и расчет 2020
- Как рассчитать
- Почему это имеет значение
- Хорошие коэффициенты LTV
- Большее изображение
- What is Loan-to-Value (LTV) Ratio: How to Calculate & LTV Formula
- Loan-to-Value (LTV) Formula
- Size of Loan
- Property’s Appraised Value
- Why the Loan-to-Value Ratio Is Important
- Pros and Cons of a High Loan-to-Value Ratio
- Benefits of a High LTV
- Drawbacks of a High LTV
- How to Increase LTV
- 1. Increase Borrower Qualifications
- 2. Look for Different Loan Options
- 3. Consider Different Types of Properties
- Reasons to Lower the LTV Ratio
- Bottom Line
- Loan-to-Value Calculator
- What’s behind the numbers in our loan-to-value calculator
- What a loan-to-value calculator does
- How to use a loan-to-value mortgage calculator
- What are the prime factors that lenders consider?
- What to do if your loan-to-value is too high
- Loan-to-value ratio
- In This Guide:
- Help to buy
- Save, save, save and compare
- What Is a Good Loan-to-Value (LTV) Ratio?
- How to Calculate LTV
- Why LTV Is Important
- What Exactly Is a Good Loan-to-Value Ratio?
- Conventional Mortgage LTV
- FHA Loan LTV
- USDA Loans and VA Loans
- Refinancing a Loan
- What If Your Loan-to-Value Ratio Is Too High?
- The Takeaway
- Tips on Securing a Favorable Mortgage Rate
Кредит для коэффициента стоимости — определение и расчет 2020
Коэффициент заимствования (LTV) — это номер, который описывает размер кредита по сравнению со стоимостью имущества, обеспечивающего кредит.
Кредиторы и другие используют этот коэффициент, чтобы понять, насколько рискован кредит, и его можно использовать для утверждения займов или страхования ипотеки.
Более высокий коэффициент LTV предполагает больший риск, поскольку активы за кредитом с меньшей вероятностью погасят кредит по мере увеличения коэффициента LTV.
Другими словами, отношение LTV говорит вам, сколько собственности вы действительно владеете по сравнению с тем, сколько вы должны. Соотношение используется для нескольких видов кредитов, включая домашние и автокредиты (как покупки, так и рефинансирование).
Чтобы рассчитать коэффициент LTV, разделите сумму займа на общую стоимость актива, обеспечивающего кредит.
Пример: Предположим, вы хотите купить дом стоимостью 100 000 долларов. У вас есть 20 000 долларов США для первоначального взноса, поэтому вам нужно будет заимствовать $ 80 000.
Ваш коэффициент LTV будет составлять 80 процентов, поскольку сумма кредита в долларах составляет 80 процентов от стоимости дома. 80 000 долл. США, деленная на 100 000 долл., Равна 0,80 (что соответствует 80% — см., Как связаны десятичные и процентные значения).
Рассчитайте коэффициент LTV, разделив значение кредита на значение свойства: 80, 000/100, 000 = 0. 8.
Простым способом расчета LTV является использование калькулятора вашего устройства или поиск Google с использованием косой черты («/») для деления.
Например, следующая ссылка будет «искать» ответ: 80, 000/100, 000, или вы можете ввести его в любое поле поиска (включая Bing и Yahoo).
Почему это имеет значение
Отношение LTV помогает кредиторам оценивать риск: чем больше они одалживают, тем больше рисков они берут. Более высокий риск для кредитора означает:
- Сложнее получить кредиты.
- Возможно, вам придется заплатить больше (с более высокой процентной ставкой).
- Вам, возможно, придется заплатить дополнительные расходы, такие как страхование ипотечных кредитов.
Если вы рассчитываете LTV, вы, вероятно, имеете дело с кредитом, который защищен каким-то залоговым обеспечением.
Например, когда вы занимаете деньги, чтобы купить дом, кредит обеспечен залогом на дом. Кредитор может завладеть домом и продать его через выкупа, если вы не погасите кредит.
То же самое касается автокредитов — ваш автомобиль может быть возвращен, если вы прекратите делать платежи.
Кредиторы действительно не хотят вашей собственности — они просто хотят быстро вернуть свои деньги. Если они будут предоставлять только до 80% (или меньше) стоимости имущества, они могут продать недвижимость менее чем за доллар, чтобы вернуть свои средства. Это проще, чем выдержать отличное предложение.
Точно так же все, что вы купили, могло потерять ценность, так как вы его купили, поэтому кредитование на 100 процентов или более ставит кредиторов под угрозу.
Наконец, когда вы вложите часть своих денег в покупку, вы, скорее всего, оцените ее и продолжаете делать платежи. У вас есть кожа в игре, поэтому вы не собираетесь уходить, если у вас нет вариантов.
Хорошие коэффициенты LTV
Что такое хороший коэффициент LTV, который может помочь вам получить одобрение на получение кредита?
Это зависит от предпочтения вашего кредитора и типа кредита. Вам часто будет больше удачи с большим объемом инвестиций (или ниже LTV).
С ипотечными кредитами 80% — это магическое число. Если вы занимаете более 80 процентов стоимости дома, вам, как правило, придется получить частное ипотечное страхование (PMI) для защиты вашего кредитора.
Это дополнительные расходы, но вы можете часто отменить страховку, как только вы получите менее 80 процентов LTV. Еще одно заметное число — 97 процентов.
Некоторые кредиторы позволяют вам покупать с 3% вниз (кредиты FHA требуют 3,5%), но вы будете оплачивать ипотечное страхование, возможно, на всю жизнь вашего займа.
С автокредитами коэффициенты LTV часто идут выше, но кредиторы могут устанавливать лимиты (или максимумы) и менять свои ставки в зависимости от того, насколько высоко будет ваш коэффициент LTV. В некоторых случаях вы даже можете занять более 100 процентов LTV.
Под водой: Когда коэффициент LTV выше 100 процентов, кредит больше, чем стоимость актива, обеспечивающего кредит (или у вас есть отрицательный капитал).
Обычно это не очень хорошая ситуация, потому что вам нужно будет написать чек (или оплатить) для продажи актива — вы не получите никаких денег из сделки. После того, как домашние цены снизились во время ипотечного кризиса, серьезной проблемой стали подводные жилищные кредиты.
Подводные автокредиты всегда являются проблемой. Если вы занимаете с высоким коэффициентом LTV, убедитесь, что есть веская причина для принятия риска.
Имейте в виду: ваш капитал не должен быть в форме денег, которые вы приносите в сделку. Если вы владеете собственностью (или частью собственности), ваша доля владения может быть использована как капитал, а стоимость этого интереса может измениться с течением времени.
Например, когда вы занимаете свой дом с помощью кредита на собственный капитал, вы используете стоимость своего дома и эффективно увеличиваете коэффициент LTV при получении кредита. Если ваш дом получает прибыль, потому что цены на жилье растут, ваш LTV будет уменьшаться (хотя вам может потребоваться оценка, чтобы доказать это).
Аналогичным образом, если вы заимствуете деньги на строительство нового дома, вы можете использовать землю, на которой вы строите, как капитал для строительного кредита.
Показатели LTV чрезвычайно важны. Но они являются частью более крупной картины, которая включает в себя:
- Ваши кредитные баллы (с хорошим кредитом легче получить более высокие кредиты LTV)
- Ваши доходы доступны для ежемесячных платежей
- Активы, которые вы покупка (Это дом в хорошей форме или многоквартирный дом? Это новый или подержанный автомобиль? Мотоцикл или RV?)
В дополнение к вашему кредиту, одной из самых важных вещей для кредиторов является отношение вашего долга к доходу , Это быстрый способ для них выяснить, насколько доступным будет любой новый кредит — сможете ли вы с комфортом взять на себя эти дополнительные ежемесячные платежи, или вы попадаете в вашу голову?Узнайте больше о соотношении долга к доходам.
What is Loan-to-Value (LTV) Ratio: How to Calculate & LTV Formula
The loan-to-value (LTV) ratio measures the percentage of a property’s value that’s being financed with a loan. Lenders typically set maximum LTV rates, which are often used by investors and homebuyers when budgeting for a project. The maximum LTV rates available to a borrower are the specific loan type, lender, as well as borrower qualifications.
Loan-to-Value (LTV) Formula
Calculating the loan-to-value ratio is relatively simple. We’ll walk you through the formula and go over each component below.
The loan-to-value (LTV) formula is:
LTV = (Size of Loan) / (Property’s Appraised Value)
Size of Loan
The size of the loan represents the amount that you borrow from the lender. Usually, lenders will set a maximum amount several factors such as borrower qualifications, the type of loan, and more. The size of the loan will dictate the amount of a borrower’s down payment and therefore his or her starting equity.
Property’s Appraised Value
The property’s appraised value is the valuation given by professional appraisers on your property. It does not necessarily equal the purchase price but is rather the estimated market value. Usually, appraisers consider several factors when appraising the property, including the property’s location, condition, and more.
Some lenders calculate the loan-to-value ratio the agreed purchase price instead of the appraised value. For example, if you agree to purchase a property for $100,000, a lender might offer you a 70% LTV ratio, meaning the loan size would be $70,000. The 30% (or $30,000) difference between the purchase price and loan amount would be your down payment.
Why the Loan-to-Value Ratio Is Important
The loan-to-value ratio is important because it helps a borrower set his or her maximum budget, expected down payment, as well as estimate the size of the monthly payments. Typically, lenders set maximum LTV as well as cap total loan amounts, which means that you’ll have to either find a property that fits within these limits or expect to invest a higher down payment.
A higher loan-to-value ratio means the lender is financing a larger portion of the property and is taking on more risk. A lower LTV means less of the property is being financed. Some borrowers want a high LTV because it means less money upfront. Others prefer a lower LTV since it means smaller financial obligation in terms of principal and interest payments and more starting equity.
Because of this, LTV is also an important consideration when it comes to refinancing a property and tapping into owner’s equity.
With a lower loan-to-value ratio, you essentially put more money down and borrow less when you first purchase the property.
This mean you have more home equity to start, which gives you refinancing options home equity loans (HEL) and home equity lines of credit (HELOC) off the bat.
Pros and Cons of a High Loan-to-Value Ratio
LTV is a common measurement that most lenders use when determining the size of a loan. There are other ways in determining a loan size, such as the use of loan-to-cost ratio and after-repair-value ratio. A higher loan-to-value ratio means a higher loan size, and it has its pros and cons:
Benefits of a High LTV
- A high LTV means borrowers don’t need to invest a large down payment
- With a high LTV, borrowers can cover costs new furniture or home improvements.
- A higher LTV gives borrowers more cash to invest elsewhere
Drawbacks of a High LTV
- A loan-to-value ratio means higher monthly mortgage payments
- Interest rates are also higher because you borrower more and the loan is riskier for lenders
- Property mortgage insurance is often required with a high LTV, and this is an additional cost
How to Increase LTV
Although a lower LTV means lower monthly payment obligations, there are some borrowers who prefer or need a higher LTV. This is because a higher LTV means less out-of-pocket cost. While the maximum loan-to-value ratios are set by the lender, there are still ways a borrower can increase the maximum LTV they can qualify for.
Below are 3 ways to increase your loan-to-value ratio:
1. Increase Borrower Qualifications
One of the biggest factors that can affect the loan-to-value ratio is your personal qualifications as a borrower. Typically, more qualified borrowers tend to get approved for a higher LTV.
If you want to increase your LTV, you should focus on increasing things your credit score, debt service coverage ratio (DSCR), liquidity, business experience for fix-and-flips and buy-and-rents, and more.
2. Look for Different Loan Options
There are different loan options that offer a higher loan-to-value, such as SBA loans, hard money loans, portfolio loans, and more. If your lender cannot provide you with the LTV ratio you need, it is best to shop around for other lenders that offer loans with higher loan-to-value ratios.
For example, SBA 7(a) loans typically have an LTV of up to 90%. Hard money loans can also often have a max loan-to-value ratio of 90%. And that’s not even to mention FHA loans, which have maximum LTV rates of 97%. If you’re currently looking at more traditional loans with max 80% LTV rates, you might want to look at some of these other options.
3. Consider Different Types of Properties
If the property that you are purchasing cannot qualify for a higher LTV, you may want to consider other types of properties that can be financed with a high loan-to-value ratio. For instance, apartment loans and multifamily loans might have a lower maximum LTV, while loans that finance single-unit, owner-occupied properties ( FHA loans) have a higher maximum LTV.
In addition, commercial real estate loans are typically financed with a lower LTV ratio. If you want to have a high loan-to-value ratio, you may want to look into smaller properties that are residentially zoned instead.
Reasons to Lower the LTV Ratio
A low loan-to-value (LTV) ratio isn’t bad. In fact, a lower LTV means you borrow less, making your monthly payments lower. Also, some lenders provide lower interest rates if the LTV is lower, which means that you’ll pay less in overall interest, too. It can be a good idea to get a lower LTV and put a higher down payment on the house if you have the cash or means to do so.
Below are few of the reasons why a lower LTV ratio might be better for you as a borrower:
- Low interest rates – A high loan-to-value ratio is ly to come with a higher interest rate, considering the risk for lenders. Most lenders, however, will offer lower interest rate for lower LTV ratios.
- Higher startingequity– As a borrower, you’ll own more of your property off the bat, giving you more leverage when it comes to refinancing as well as a greater opportunity for price appreciation of the asset.
- No private mortgage insurance (PMI) – Usually, a high LTV ratio would require you to pay for monthly mortgage insurance, which is an added cost for you.
When financing a property, loan-to-value ratio is often used to determine the size of loan. A high LTV is advantageous to the borrowers in the sense that they do not need to invest a large down payment. However, some borrowers prefer a lower LTV because this makes their interest rates and monthly mortgage payments much lower.
The loan-to-value ratio is the amount of the mortgage compared with the value of the property. It is expressed as a percentage. If you get an $80,000 mortgage to buy a $100,000 home, then the loan-to-value is 80%, because you got a loan for 80% of the home's value.
Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind.
From the lender's standpoint, a mortgage with a high loan-to-value ratio is more risky. Most mortgages with loan-to-value ratios above 80% require mortgage insurance. People in the mortgage biz call loan-to-value «LTV» for short.
What’s behind the numbers in our loan-to-value calculator
This calculator helps you unlock one of the prime factors that lenders consider when making a mortgage loan: The loan-to-value ratio.
Sure, a lender is going to determine your ability to repay — including your credit score, payment history and all the rest.
But most ly, the first thing they look at is the amount of the loan you’re requesting compared to the market value of the property.
An LTV of 80% or lower is most lenders’ sweet spot. They really making loans with that amount of LTV cushion, though these days most lenders will write loans with LTVs as high as 97%.
Let’s see how your LTV shakes out.
What a loan-to-value calculator does
The NerdWallet loan-to-value mortgage calculator uses an easy, step-by-step process:
- The type of loan you’re considering: purchase, refinance, etc.
- The purchase price of the home
- And how much of a down payment you’re willing to make
Your loan-to-value ratio will be instantly calculated. Anything in the 80% to 90% range or lower and you’re golden. If you’re in the 90%-97% range, it’s still a doable loan — you’ll just want to shop even harder to get your best interest rate.
» MORE: Find out how much your home is really worth
How to use a loan-to-value mortgage calculator
It’s all about walking into a lender, or applying online, with all you need to know to get the best terms possible. And calculating your loan-to-value will help you decide:
- The loan term that works best for you. A 30-year fixed-rate loan will allow more affordable monthly payments, but you’ll pay a lot more interest over time. A 15-year fixed-rate mortgage means you pay less interest over the life of the loan — your interest rate will be lower, too — but your monthly payment will be considerably higher.
- If an adjustable-rate mortgage might be a good option. If you have a high loan-to-value, you might be able to lower your interest rate by considering an ARM. This can be especially suitable for home buyers who plan on being in a home for only a few years.
- Am I trying to buy too much house? A high loan-to-value may mean you’re trying to buy more house than your down payment allows. Scaling back a bit on your dream home can make your down payment go farther and lower your LTV.
- How much of a down payment should I make? It’s a good question to ponder. If your LTV is below 80%, you won’t have to pay mortgage insurance. That can save you quite a bit of money.
What are the prime factors that lenders consider?
Loan-to-value is just one element lenders look at when deciding whether an applicant will qualify for a loan. It is definitely among the most important, but other factors include:
- Credit score. Your credit score not only provides a benchmark for qualification, but it is also the criteria on which a lender will decide your interest rate. The higher your score, the lower your interest rate. And of course, it works the other way, too: a lower score will mean you pay a higher rate.
- Down payment. The bigger your down payment, the more attractive you’ll seem to a lender. It means it will take less risk in lending you the money to buy a home. That’s why loan-to-value plays such a major role in lending decisions.
- Cash flow. The amount of money you have left over at the end of the month — after paying your recurring debts and expenses — is a key indicator of your ability to repay a mortgage.
- Liquidity. Having money in the bank, in the form of savings or investments, lets the lender know that you can not only pay the closing costs required to complete a loan but have a cash cushion necessary for homeownership expenses, as well.
» MORE: How your credit score affects your interest rate
What to do if your loan-to-value is too high
Having a high loan-to-value ratio is not as big of a deal as it used to be. As we’ve mentioned, some conventional loans, as well as loans backed by the FHA, allow 97% LTVs — and USDA and VA loans are issued with 100% LTVs all the time. But besides the exceptions, generally, a higher LTV means a higher interest rate.
Here are some things to consider if you have a high loan-to-value ratio:
- Can you make a bigger down payment? Saving so that you can put more money down, or getting help from family members to make a larger down payment, may not always be an appealing option, but you’re ly to get better loan terms.
- Downsize your dream home. Buying less home will make your down payment go farther and lower your LTV. You can always blow out a few walls and add upgrades later.
- Try to clear at least the 80% LTV hurdle. Mortgage insurance premiums usually kick in if your LTV is below 80%. If you’re close, try to make up the difference so that you clear the 80% mark. You’ll save a good deal of money in the long run.
Loan-to-value ratio, or LTV, is a phrase we often see thrown about when the housing market is being discussed, though many are left clueless as to what it actually means.
It is, in fact, a rather simple concept. We’ll explain exactly what LTV is, and what the implications are of a higher or lower LTV on your mortgage.
In This Guide:
The average salary in the UK as of early 2015 is around £22,000, while the average house price is more than ten times this at just over £270,000.
As you can see, even with a lot of saving involved, it would take an incredibly long time for any of us to have enough cash to buy a house outright. Therefore for most of us, at least in the UK, in order to buy a property, some kind of loan or mortgage is necessary.
The loan-to-value is the ratio between the value of the loan you take out and the value of the property as a whole, expressed as a percentage. The remaining value is paid as a deposit.
Say you want to buy a house worth £300,000, and you have £60,000 in your account that you can use as a deposit. You’ll need a loan of £240,000 in order to purchase the property, and so your LTV will be 80% since 240,000 = 80% of 300,000.
Calculating LTV is fairly simple; just take the amount you need to borrow, divide it by the value of the property and then multiply the result by 100 in order to get its percentage value.
To see this in reference to the above case:
240,000/300,000 = 0.8
0.8 X 100 = 80
The lowest LTV mortgages available come with a ratio of 60%, going right up to 100% for the highest. Below 80% is considered ‘low’, with 85-90% and upwards considered ‘high’.
Low LTV mortgages come with low interest rates but high deposits, and vice versa for loans with high ratios.
As a general rule, the higher the LTV, the higher the risk on the part of the lender, as more money is being lent out to someone with less capital to put up front in the first place as a deposit. This translates into higher interest rates.
A loan with a lower LTV ratio is less of a risk for the lender, and for the borrower since less is being borrowed, and so will generally be a cheaper product.
Of course, other things your credit rating will also affect the interest rates you are offered.
As a customer, whether or not you’d be better with a higher or lower LTV will depend on whether you place more off importance on smaller monthly payments or on a smaller deposit. Of course, high LTV means low deposit and vice versa.
Because of the risks associated, customers with poor credit histories will generally be offered low LTV mortgages, and high LTV mortgages will be offered to those with much better credit scores.
If you can afford the deposit, a mortgage with a low LTV will work out well in the long run with lower interest and a lower overall capital value to pay off.
If you’ve got a good enough credit score, as well as the means to maintain the payments, a mortgage with a high LTV will allow you to get onto the property ladder with very little put forward up front.
There is however, a very high risk of borrowers defaulting in high LTV mortgages though, given the high interest and capital.
Indeed loans with LTV of 100% and even higher are sometimes available but the number of borrowers being offered these and subsequently defaulting on them is thought to be a significant factor that cause the house price crash in 2010.
High LTV mortgages are often desirable for first-time buyers with little up front capital, but given the risk involved, many opt instead to go through housing schemes help to buy, which offers a similar outcome without quite so much danger.
Help to buy
Help to buy is a scheme launched by the government to help first-time buyers get on the property ladder without being stung by inflated interest rates and unaffordable loan repayments.
After the financial and house price crashes between 2007 and 2011, the proportion of high LTV mortgages being offered shrunk drastically when compared to loans with lower ratios. This spelt danger for first-time buyers without the capital necessary to afford a low LTV mortgage.
Help to buy works in two ways, both broadly aimed at allowing buyers to purchase a property without paying more than 5% of the property value as a deposit.
The first way is only applicable to those buying new-build homes, and involved the government offering a 20% loan to the buyer. The second way it works, and this is where it relates to LTV, essentially involves the government guaranteeing the lender 15% of the loan value so that they can offer a 95% LTV mortgage with less risk involved.
Save, save, save and compare
While there are various schemes help to buy in place to help you out, the best thing you can do if you want to buy a new property is, rather simply to save as much as you can and put as much as you can up front as a deposit.
Whatever your requirements, if you need a mortgage to help purchase your new property, compare mortgage quotes online to ensure that you’re getting the best deals around.
Use our mortgage comparison service to get yourself a list of the cheapest quotes on the market so that you can move in as soon as possible.
What Is a Good Loan-to-Value (LTV) Ratio?
Basically, your loan-to-value (LTV) ratio is the flip side of your down payment, assuming that the purchase price equals the appraised value of the home. So if you are putting down 20%, your LTV is 80%.
If there is a difference between the appraised value and the price you agreed to pay, the lender will use the lower number to calculate your LTV (loan amount divided by appraised value or purchase price). This is true whether you are buying or refinancing. With an LTV of 80% or lower, you are eligible for lower mortgage/refi rates and more favorable terms.
You can take several steps to lower your LTV, including working with a financial advisor to boost your savings and make a larger down payment.
How to Calculate LTV
The loan-to-value (LTV) ratio is the percentage of your home’s appraised value (or purchase price if it is lower) that you are borrowing. To calculate your LTV ratio, take your mortgage amount and divide it by the purchase price or appraised value of the home, whichever is lower. Then multiply by 100 to turn the ratio into a percentage.
Say you’re buying a $300,000 home and taking out a $250,000 loan. To calculate your LTV, divide 250,000 by 300,000; then multiply the result by 100. The result: your LTV is 83.3%. When you subtract the LTV from 100%, you typically get your down payment expressed as a percentage.
Why LTV Is Important
The higher your LTV ratio, the higher the mortgage rate you’ll be offered. Why? With a higher LTV, the loan represents more of the value of the home and is a bigger risk to the lender.
After all, should you default on the loan and your home goes into foreclosure, the lender will need the house to sell for more to get its money back. Put another way, in a foreclosure, your down payment is the “haircut” the lender can take on the sale price of your house.
So the smaller the haircut (or your down payment), the less ly the lender will get all of its money back.
Additionally, when your LTV is high and your down payment is relatively small, you have less to lose if you default and walk away from the loan (and home). In other words, you’re more ly to stick around if you put down 20% down than a 3%.
What Exactly Is a Good Loan-to-Value Ratio?
What’s considered a good LTV ratio varies depending on the type of loan you’re applying for.
Conventional Mortgage LTV
If you’re applying for a conventional mortgage loan, a decent LTV ratio is 80%. That’s because many lenders expect borrowers to pay at least 20% of their home’s value upfront as a down payment.
FHA Loan LTV
Mortgage loans backed by the Federal Housing Authority (FHA) come with a different set of rules. For homebuyers who are trying to qualify for an FHA loan, an acceptable loan-to-value ratio is 96.5% if your credit score is at least 580. If your credit score falls between 500 and 579, your LTV ratio can’t be higher than 90%.
For example, if you’re buying a home that’s appraised at $200,000, your loan can’t be more than $180,000. That means a minimum $20,000 down payment so that you stay at 90% LTV ratio.
USDA Loans and VA Loans
If you’re applying for a loan that does not require a down payment such as a USDA loan or VA loan, your LTV ratio can be as high as 100%. Of course, you’ll need to meet other qualifications in order to be eligible for these kinds of mortgages, such as income requirements and property location rules or specific military status.
Refinancing a Loan
Borrowers who are refinancing may or may not need a specific LTV ratio. For example, if you’re refinancing through the federal Home Affordable Refinance Program (HARP), your LTV ratio must be higher than 80%. But if you’re interested in an FHA streamline refinance, there are no LTV ratio limits.
What If Your Loan-to-Value Ratio Is Too High?
Having a high LTV ratio can affect a homebuyer in a couple of different ways.
For one thing, if your LTV ratio is higher than 80% and you’re trying to get approved for a conventional mortgage, you’ll have to pay private mortgage insurance (PMI).
Fortunately, you’ll eventually be able to get rid of your PMI as you pay down your mortgage. Your lender must terminate it automatically when your LTV ratio drops to 78% or you reach the halfway point in your amortization schedule.
If your LTV ratio is too high, taking out a mortgage loan will also be more expensive. By making a small down payment, you’ll need a bigger loan. In addition to paying PMI, you’ll probably pay more interest.
A high LTV ratio can prevent a homeowner for qualifying for a refinance loan. Unless you can qualify for a special program ( HARP or the FHA Streamline refinance program), you’ll ly need to work on building equity in your home.
The loan-to-value ratio is just one factor that mortgage lenders consider when deciding whether to approve a borrower for a mortgage or a refinance loan. There are other factors that lenders take into account, such as credit scores. But if you want a low mortgage rate (and you want to avoid paying PMI), it’s best to make a sizable down payment and aim for a low loan-to-value ratio.
Tips on Securing a Favorable Mortgage Rate
- If you can’t make a reasonable down payment now, don’t rush into the home buying game. Take some time to build up your funds so you can get a lower interest rate on your loan.
Check out our reports on the best savings accounts and best certificate of deposit (CD) rates around.
- For help with budgeting and saving, consider working with a financial advisor. A financial advisor can help you define your goals—and reach them.
SmartAsset’s financial advisor matching tool makes it easier to find an advisor who suits your needs. Simply answer a few of questions about your financial situation and preferences, and the program will connect you with up to three financial advisors in your area.
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