Question:

What is LTV (loan-to-value) ratio and how big can it be?

Answer:

Homebuyers should know what is LTV (loan-to-value) ratio. This is one of the crucial criteria for assessing how much of a risk the borrower is.

LTV (Loan to Value) = First Mortgage Amount / Property Appraised Value

LTV (Loan-to-Value) Ratio Examples

To purchase a mortgage, the loan LTV can be less than 80%, or even exceed 100%. To borrowers, it is important to know that paying 20% of the sales price will exempt them from paying private mortgage insurance, required almost by all lenders for loans with over 80% LTV.

In general, the larger the down payment, the happier the lender is. However, most homebuyers and especially first-time homeowners often have difficulties coming up with a large down payment. The higher the LTV, the most expensive the mortgage loan turns out to be.

However, there are down payment assistance grants (private and government-sponsored) that homebuyers can turn to for help. If you have tough time securing funds for closing costs and down payment, check with your local housing authorities for details.

Also, the FHA (the Federal Housing Administration) and the VA Department (Veterans Affairs) are some of the government institutions providing loans with high LTV to eligible borrowers.

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