Loan-To-Value: Defining LTV in Layman’s Terms

A variety of mortgage ratesA mortgage involves plenty of complicated terms, which is why homebuyers and sellers must understand these in simpler explanations. Among all the technical jargon, LTV is one of them. Loan-to-Value or LTV is the percentage of the balance of the mortgage loan divided by home value.

For instance, a resident with a balance of USD 500,000 and USD 550,000 home value will have more or less a 90 percent LTV. You have to know this because LTV plays a crucial element to mortgage companies in Jackson, TN such as Mortgage Investors Group, as it is part of mortgage approval procedure.

Through a refinance, your LTV is usually equal to the size of the loan divided by the evaluated value of your home. When it comes to purchase, LTV relies on many factors such as the rate of sales of your house, unless your house values for below its purchase rate.

When this occurs, the LTV of your home will depend on the lesser appraised value and not its purchase rate. Here are samples to demonstrate the notion of LTV:

Refinancing a house without a second mortgage

  • Value of Home – USD 150,000
  • Balance of Loan – USD 110,000
  • Equity – USD 40,000
  • LTV – 73 percent

Refinancing a house with a second mortgage

  • Value of Home – USD 150,000
  • Balance of Loan – USD 110,000
  • Second Balance of Loan – USD 10,000
  • Equity – USD 30,000
  • LTV – 80 percent

Purchasing a house that appraises for more than its purchase rate

  • Price of House – USD 150,000
  • Value of Appraisal – USD 160,000
  • Down Payment – USD 20,000
  • Amount of Loan -USD 110,000
  • LTV – 73 percent

Purchasing a house that appraises for less than its purchase rate

  • Price of House – USD 150,000
  • Appraised Value – USD 140,000
  • Down Payment – USD 20,000
  • Amount of Loan – USD 110,000
  • LTV – 79 percent

It does not matter if you are refinancing or buying because the LTV is crucial as it helps to identify your eligibility for the loan and mortgage rate.