Understanding Mortgage Terms – Loan To Value (LTV)

ARM. Ratios. COFI. Underwriting. Conforming. Indexed Rate. Points. Origination. Adjusted Basis. 

Get a mortgage these days and you’re bound to hear a lot of terms thrown around that just don’t make a lot of sense at first. Truth is, most agents probably don’t know what they mean, either. And one of the simplest, yet often misunderstood, terms is Loan To Value (LTV). Dan Green just wrote a good post breaking down LTV in plain english. From his post:

Buying a Home which appraises for more than its Purchase Price

  • House price: $100,000
  • Appraised value : $110,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • Loan-to-value (LTV) : 80%

Buying a Home which appraises for less than its Purchase Price

  • House price: $100,000
  • Appraised value : $90,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • Loan-to-value (LTV) : 89%

Refinancing a Home with no Second Mortgage

  • Home value: $100,000
  • Loan balance: $80,000
  • Equity: $20,000
  • Loan-to-value or LTV: 80%

Refinancing a Home with a Second Mortgage

  • Home value: $100,000
  • Loan balance: $80,000
  • Second loan balance : $10,000
  • Equity: $10,000
  • Loan-to-value or LTV: 90%

Whether you’re buying or refinancing, though, your loan’s loan-to-value is important because it helps to determine your mortgage rate and your loan eligibility.

Understanding your LTV can help you, with your lender, determine the best product for your situation. It might not just be what you were expecting. Read the full post here.

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