- What is Loan to Value (LTV)?
- What is the importance?
- What is the impact on Mortgage Insurance?
Loan to value ratio
What is Loan To Value (LTV)?
Loan to value is exactly what it sounds like. It is the loan amount in relation to the value of the home, expressed as a percentage. So for example, if you have a home that is worth $100,000 but you owe $80,000 on your home the LTV is 80%. As it applies to purchasing a home, if you are purchasing a $250,000 home and putting down $25,000 as a down payment then your resulting LTV the lender will use in their calculation and analysis will be 90% ([$250,000 – $25,000] ÷ $250,000).
What is the importance?
Borrowers with a low LTV have more equity in their home and represent less risk as compared to those with a higher LTV. Even if the borrower defaults, the lender stands a good chance of recovering a substantial percentage of the loan amount after foreclosing, and later selling the property. LTV is certainly not the only factor a lender considers when deciding whether to lend to a particular borrower. That said, in most cases applicants with a low LTV qualify for a lower mortgage rate.
What is the impact on Mortgage Insurance?
If you have a conventional loan, you can avoid paying the PMI by making a downpayment of 20 percent, or more, of the homes value. Lenders offering FHA purchase loans accept an LTV of up to 96.5 percent, but the mortgage insurance varies based on LTV. If the LTV is greater than 90% the FHA mortgage insurance is never eliminated and lasts for the full mortgage term. If the LTV is less than 90% then the mortgage insurance will drop off after 11 years into the mortgage term. USDAloans allow up to 100% LTV (and even allow costs to be rolled into the mortgage to go above 100%), but does have an annual fee that is similar to mortgage insurance which lasts for the term of the loan, regardless of LTV. Lastly, VA loans also allow an LTV of 100 percent but does not have any mortgage insurance tied to the loan regardless of LTV.
"Loans are what we do, not who we are."- CEO, Steve Jacobson
“Loans are what we do, not who we are.”
– CEO, Steve Jacobson
This may vary depending upon the specific type of mortgage you are applying for, as different agencies will need to be involved in the process. Typically the process plays out in a month or less, though some will go quicker. It is not uncommon to have the mortgage application processed within 10 days. It is critical that you get the application entirely completed, so that you can avoid any delays along the way.
The main thing that can delay the approval of a loan is failing to properly and completely fill out the applications. It is also important that you be completely honest on the applications, as any discrepancies may cause delays. In addition, changing jobs, having a change in your salary, changing your marital status or taking on additional debt can delay the approval of a loan.
Closing costs include items such as taxes, title fees and hazard insurance. Sometimes what is included in closing costs varies, and it can be impacted by the negotiation process on the sale price of the home, as the homeowners may or may not cover certain closing costs. You’ll want to have some money set aside to cover your closing costs.
Prepaids are items that you as the homebuyer pay at closing. This is a payment before the actual due date. These may be necessary depending upon the details of the closing. They include taxes, hazard insurance and other various assessments.
After you close, you’ll receive a letter that includes all of the dates and information that you need. If you want further details while you are closing, you should inquire about the specific due date of the first payment.