As a homebuyer, you’re going to hear about the LTV ratio. First of all, the LTV ratio refers to the loan-to-value ratio.
When someone mentions this ratio, they are talking about the difference between the loan and the overall value of the property or house. This is essential information that lenders use to ensure the loan won’t be too risky for them.
Ensuring the LTV is low means that the loan is likely to be approved, so this value is a big deal.
How to Calculate LTV?
It’s clear that the LTV is important, so learning to calculate it is wise.
An appraisal is needed to find out the value of the property. Then, all a homeowner or a homebuyer needs to do is divide the loan amount by the house’s value. The answer is the LTV ratio. Again, this number should be as low as possible.
If an LTV ratio is high, the loan might not be approved.
What’s a Good LTV Ratio?
Folks hoping to get a loan or refinance want to see something under 80 percent.
A good mortgage broker, like Cape Coral Mortgage, will take that ratio and help the borrower get the loan he or she’s been hoping for. This isn’t to say that a person with a higher ratio can’t get that loan or refinance, but it’ll come with a few drawbacks. Granted, a good mortgage broker will make most cases work if given a chance.
A good LTV ratio leads to good loan options and could eliminate the need to pay for mortgage insurance. This saves borrowers money, which is everyone’s goal.
Improving LTV as a New Home Buyer
The following are some things homebuyers can do to improve their ratios:
- Save to make the most considerable downpayment possible.
- Find a cheaper home, maybe in a quieter city or a home that needs some work.
No one loves these suggestions. Coming up with a larger downpayment is a pain. It can make it harder to become a homeowner.
Finding a cheaper home isn’t ideal. When someone is going to spend this much cash, they want it to be for the home of their dreams. Anything less than that feels wrong, but these are the only ways to improve that ratio.
Improve the Ratio When Refinancing
The following are some things that could be done to improve the LTV if refinancing is the goal. Doing the following could lead to lower monthly payments:
- Never miss a mortgage payment.
- Make improvements that increase the property value.
- Follow housing value trends in the property’s community.
Most of these are straightforward except the third one.
Following the housing value trends allow homeowners to refinance when home values are high in the community rather than when home values drop.
What Could Hurt LTV Ratio?
A lot could hurt this ratio. For example, the housing market could crash. This has happened in this country and this state a few times.
The best thing to do is to stick to areas in higher demand, like the more populated areas of Cape Coral and waterfront property.
Not taking care of the property could hurt this number, especially if the property’s issues become so apparent that the value begins to decrease.
If the downpayment decreases for some reason, this could hurt the LTV. Maybe hard times hit the homebuyer, or the homebuyer didn’t fully calculate how much a home might cost to purchase.
While this may not explain everything there is to know about the LTV ratio; it’s a start. Folks who want to learn more should talk to a lender directly as soon as possible.