LTV- Don't overthink it, its pretty simple

Posted by on Friday, March 22nd, 2019 at 8:06am.

The mortgage world is full of acronyms.  

FHA, PMI, LTV, DTI, HELOC, AMC,+ ARM, to name a few.. but why so many?  The head honchos think that they are simplifying things, when in fact all it does is convolute it for the general public.  This weeks topic is a prime example of this.  

Have you ever been turned down for a loan because of the LTV on your property?  At the time it probably didn't make any sense, when in fact, one fo the simplest math equations ever was used to determine the LTV.  In an effort to not overcomplicate an issue that is truly very simple we will cut right to the chase for todays topic. 

Reaching out to a local lender for up to date guidelines on any mortgage topic is always best as they are ever-changing. This week we interviewed Wilson Miller, a Loan Officer with Planet Home Lending who generously provided all of the pertinent information to properly explain this weeks topic: LTV.

Krystal: What is LTV?  

Wilson: Loan to Value = a ratio factor lenders use to determine the risk involved in a transaction when qualifying a borrower

Simple Formula: 

Krystal:  Why do lenders care so much about LTV?

Wilson: Lenders clearly prefer low LTV which represent less risk.  On the flip side, with home prices surging to all-time highs, lenders have several programs that are built for homeowners with higher LTV’s.  Loan to value can be directly related to your down payment when figuring your ratio.  

For Example: 

Conventional programs allowing 97% LTV  (3% down)

FHA/Government backed programs allowing 96.5% LTV (3.5% down) 

VA and USDA programs allowing 100% LTV (0% down, 100% financing) 

 *Loan to Value also dictates your mortgage insurance payment, higher LTV higher MI payment.  

LTV is crucial to the loan process although not noticed or discussed in much detail with home buyers on the purchase side as the lender will know and put you into the proper program using these guidelines.  

Krystal:  When would a client typically run into LTV?

Wilson: Refinancing is where you’ll hear more about LTV.  In a refinance situation you are held to a different set of guidelines.  Depending on the type of refinance, “rate and term” or “cash out” you ratios will differ, ranging anywhere from 75% LTV up to 95% LTV.  Situations do vary from case to case and can fall outside of these guidelines.  

If you have been thinking about refinancing recently, rates are the lowest they have been in a year. According to Martin Crustinger, a writer for www.kdow.bizt the Feds recently released a forecast for 2019 that states there will be slower growth and zero rate hikes!  You can contact us at krystal@westandmainhomes.com

 

 



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