| When most people think about mortgages, they focus | | | | LTV is 75 percent. Put in simple terms, you are willing |
| on credit scores, points, term and interest rates. The | | | | to put a $100,000 payment down. Importantly, the ratio |
| loan to value ratio offered by your lender, however, | | | | is determined by using the appraised value of the |
| should not be overlooked. | | | | home, not the sales price. |
| Understanding Loan to Value Calculations as Part of | | | | The LTV ratio is often overlooked by borrowers when |
| Your Mortgage | | | | applying for a loan. This is a huge mistake. The LTV is |
| Lenders are odds makers when you get to the heart | | | | a major factor in swaying a lender to either approve |
| of things. Why? With every loan application, they | | | | or reject a home loan application. Why? In many ways, |
| calculate the odds on various outcomes. What are the | | | | the LTV represents your credibility. The more of your |
| odds that you will meet the monthly payment? What | | | | own money you are willing to put down at the outset |
| are the odds your current total debt excluding the loan | | | | of the transaction, the more credible you are to the |
| will remain manageable? What are the odds you will | | | | lender. In the example above, a 25 percent down |
| have the necessary source of income on a continual | | | | payment tells the lender you are serious about the |
| basis, to wit, how long will you hold your job? While all | | | | purchase and protects the lender from some risk. If |
| of these issues are couched in the mortgage industry | | | | you default, there will be plenty of value in the home |
| as loan terms, their combined results give the lender a | | | | for the lender to recover their investment. If the home |
| picture of whether you are a good risk. | | | | depreciates, it will be you who loses value, not the |
| The loan to value ratio for a purchase is another | | | | lender. These issues go a long way to making a |
| aspect that fits into the evaluation by the lender. The | | | | hesitant lender more confident about you as a |
| loan to value ratio is know in the mortgage industry as | | | | borrower. |
| LTV. The LTV is simply the value of the prospective | | | | If you have shaky credit or some other weakness in |
| home divided by the amount you are applying for in | | | | your loan application, consider raising your down |
| your loan package. If a home has a valued of | | | | payment amount. The more you put down, the more |
| $400,000 and you are asking for a $300,000 loan, the | | | | the lender is willing to overlook. |