The Loan-to-Value Ratio Explained! 💡🤔 The Loan-to-Value ratio is a term typically used by lenders such as banks or building societies to articulate the ratio of a loan to the value of a purchased asset. The ratio essentially describes the size of a loan you can take out in comparison to the value of the property securing the loan.
How to Calculate Loan-to-Value Ratio?💹 Lenders will calculate the Loan-to-Value Ratio by dividing the amount of the mortgage by the value of the home. Lender’s will usually require an LTV ratio of at least 80% to qualify for a mortgage. If you borrow more than 80% of a home’s value you may have to get private mortgage insurance in order to protect the lender.
Why do Lenders use the Loan-to-Value Ratio? 📝
Lenders use the LTR Ratio to evaluate risk in that the more they lend, the more risky. Higher risk means that it is more difficult to get approved for loans, you may have to pay more in interest, and you may have to pay additional costs such as mortgage insurance.
Loan-to-Value Be All and End All? 📑
While the Loan-to-Value Ratio is an important factor in determining whether or not you can secure a mortgage – there are also other factors that play a part such as credit scores, your monthly income, the asset in question, and the debt-to-income ratio. Be sure to set yourself up for success and learn what factors and to what extent they play a role in determine whether you can secure a mortgage.
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