What is Loan to Value, and Why Is it Important?

Your loan-to-value ratio, or LTV, is a term used by lenders and banks to show what the value of your home is compared to the amount of your home loan.  It’s a measurement of how much you owe compared to what the house is currently worth, and it lets lenders have a baseline for deciding to lend you money.

To determine your LTV, you just divide the loan amount by the home’s appraised value in a refinance or the purchase price in a sale.

Lenders will use the LTV when underwriting your loan.  They look for borrowers that have lower LTVs, and they will qualify for lower mortgage rates, as long as they don’t have low credit scores.  A borrower with a high loan-to-value ratio is considered a higher risk, as they may have more difficulty repaying a loan due to their higher debt considerations.

As a lender looks at it, a borrower with a lower LTV is more attractive.  They are someone with more equity in the home, which makes them less likely to default on the loan, which is the whole point of a mortgage.

Even if the lower LTV score borrower DOES default, the home is easier to sell in foreclosure, as they just have to get what is owed on the house.  Plus, they are typically writing a smaller loan, mitigating their risk.

Loan-to-value is a great way to determine how likely you are to get a refinance, or to get a low rate on your new home purchase.  The Home Loan Expert team can help find your LTV and work with you on your mortgage.

Call The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515 or Nashville at (615) 810-8555. You can always apply online at www.thehomeloanexpert.com, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you.  Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?

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