Posted on Friday, May 1st, 2020

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.

If you have any questions regarding obtaining a mortgage on your property, Orlando FL real estate attorneys like Nishad Khan P.L. can help. Call Nishad Khan P.L. to learn more.