Loan-to-Value

Loan-to-Value ratio is commonly referred to as LTV. The LTV is the relationship between the amount owed on the mortgage and the appraised value (or sale price if it is lower) of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%).

Conventional loans require private mortgage insurance (PMI) for borrowers with an LTV ratio of more than 80% (less than 20% down payment). Private mortgage insurance is not tax deductible, even though it is included in your monthly mortgage payment This insurance premium is lower if your LTV is slightly above 80%, and more expensive the higher your LTV. If you choose a knowledgeable mortgage broker, they can creatively finance your loan, so that you can avoid PMI, and have tax benefits as well.

Most FHA loans require mortgage insurance. The mortgage insurance charge for 30 yr FHA loans is .5% per year of the loan amount and is charged to the borrower every month. FHA loans will also require an upfront mortgage insurance premium of 1.5%. Get more information on an FHA Loan.

VA loans, on the other hand, do NOT require PMI. In fact, lenders are prohibited from requiring private mortgage insurance on VA loans. However, borrowers are required to pay a one-time funding fee on VA loans.

Loan-To-Value (LTV) Ratio

70% or less If you only need a mortgage of 70% or less of the sale price of the home, your approval process will be relatively easy, and you should be able to get a slightly better rate.
71-80% If you need a mortgage from 71-80% of the sale price of the home, your process should still be relatively simple. You may need to obtain more financial records than if your mortgage was less, but you should be free from the mortgage insurance requirement.
81-90% + PMI For a mortgage from 81-90%, lenders will require private mortgage insurance (PMI) as well as more detailed financial information. The private mortgage insurance may be discontinued on once the LTV ratio reaches a certain point.
95-100% + PMI If you require a loan of 95-100% of the purchase price of your home, an FHA loan, or a VA loan (if you qualify), may be a good choice. You can also check with a mortgage broker, and they may be able to help you creatively finance so that you can avoid PMI.
Greater than appraised value In aggressive markets, some lenders will offer loans totaling 110-125% of the purchase price of the home. Rates on these loans may likely be substantially higher than conventional loans. Check with different lenders to get the current rates on these types of loans.

Learn how to Prequalify and determine how much you can spend on a house.

Get Information about FHA Loans and VA Loans. Get information on FHA Streamline Refinancing. Do you need information about a Bad Credit Loan or a Veterans Affair Loan?

Learn all about Mortgages:

Loan Types > Property Types > Loan Term > Mortgage Lenders > Loan-To-Value > Prequalification > Buy-Downs/Discount Points > Closing Costs

You may fill out an advice form or call 800-930-9201 to get additional advice on how your LTV will affect different aspects of the loan process and the loan payments. Including what you need in order to void PMI as well as how you can decrease the PMI on your loan even if you do pay it.
If you have questions or would like help with your mortgage, you can call us at 800-930-9201.

"James Chapman was more than helpful in securing our loan. He was very knowledgeable and an excellent source for any questions we had. I would recommend him to anyone looking for a loan officer who knows what they are doing. My experience with James was one that I will use to compare all future transactions. James took time out of his day to make sure that we completely understood everything."

-L. Serna
Las Cruces, NM
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