What is a Loan to Value Ratio?

What is a Loan to Value Ratio?

What is a loan to value ratio?

home loanLoan to value ratio is used as a tool by a lender for the purpose of assessing its risk in connection with a loan before approving a mortgage. The loan to value ratio is calculated as follows:

LTV ratio = Mortgage Amount
Appraised Property Value

In closings, the property value is typically set at the purchase price. Essentially, the higher the ratio, the higher the risk to a lender that is approving a mortgage. This amount is generally expressed as a percentage.

The loan to value ratio can also determine how much mortgage insurance the borrower will have to pay on a loan. If the value is less than 80%, no mortgage insurance may be required in connection with conventional loans.

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