Question:

What is the maximum loan-to-value ratio (LTV) to purchase a house?

Answer:

The maximum loan-to-value ratio (LTV) is the ratio of mortgage loan amount lenders would agree to extend to a borrower and the house price.

The maximum loan-to-value ratio (LTV) will vary among lenders. However, most lenders would want 80% LTV - this means that the borrower is expected to come up with 20% down payment.

Very few borrowers can in fact provide a 20% down payment, therefore lenders agree on higher LTV and demand private mortgage insurance (PMI) premiums. Therefore, sometimes borrowers take second mortgage loans to provide the down payment. Thus, they increase the maximum LTV but the lender sometimes is not informed.

For example, the first lender provides a first mortgage with 80% LTV and they rest assured their collateral is protected by 20% equity when, in fact, the borrower put only 5% down and borrowed another 15%.

The maximum loan-to-value ratio (LTV) is lower on rental properties.

Lenders demand lower LTV on mortgage loans used to purchase investment real estate. Therefore, sometimes investors would state on their loan application they are buying owner-occupied property.

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