Loan to Value Considerations

What is the Loan to Value or LTV?

Loan to value, or LTV as it is commonly referred to, is the ratio of Loan Amount to the Value of a property. For example, a loan of $200,000 on a property valued at $400,000 is at an LTV of 50%. LTV considerations become important in several situations.

Purchase loans

When a property is purchased, the down payment is critical to the lending decision. When the down payment is less than 20%, i.e. the LTV is greater than 80%, a lender will generally require mortgage insurance. This requirement also means that the loan will usually require an additional level of approval, from a Private Mortgage Insurance Company. Mortgage insurance coverage, or PMI, is a premium or fee which is included in the monthly mortgage payment. It can range from .22% to almost 1% of the loan amount annually, with the exact coverage determined by the loan type, insurance company, and LTV. Mortgage insurance payments are not tax deductible.

An alternative to obtaining PMI is to structure the purchase transaction to include a first and second mortgage, thus bypassing the need to have the additional mortgage insurance premium.


In a refinance transaction, the ratio of loan amount to appraised value is taken into account in a similar way. Especially when a borrower wants to obtain cash out in a transaction, the typical rule is a maximum of 75% of the appraised value for the total loan amount, including any cash out. There are lenders who will go beyond the 75% limitation, however the loan products and interest rates offered are generally not as competitive. Rate and term refinances, or borrowing the current loan amount plus applicable closing costs, can go up to 80% without requiring Mortgage Insurance. Again, at 80.01% or greater the new lender will demand mortgage insurance.

When combining a first and second mortgage in a refinance transaction, bear in mind that most lenders will require that the second loan be "seasoned" for a period of time, generally 12 months. If the second is not "seasoned" the lender will view the consolidation of the first and second mortgages as a cash out refinance loan, subject to the lower LTV guidelines.

Overall, the lower the ratio of the loan amount to the value appraised, the more favorably a lender views the risk of the loan. Loan to value considerations also will differ in owner occupant versus rental or non-owner situations.

Copyright 1997 E-Loan Inc.
540 University Avenue, Palo Alto, CA 94301
All Rights Reserved

Preferred Partners
Check out the best in local home-related services.
Automated E-mail Listings Service
Sign up to automatically receive new listings today!
Home Advice
Get the answers on home selling and buying.
Real Estate News
Find out what's happening in real estate.
Contact Information
Marlene Morejon, Broker
(305) 624-8614
(305) 621-2555

E-Mail Me

Jomar International Realty, Inc.
18520 NW 67 Avenue, Suite 106
Miami, FL 33015
Mortgage Financing
Investor Packages
Different Types of Loans
Leveraging Your Money
Length of Your Mortgage
Saving for the Down Payment
Closing Costs
Getting Your Finances in Order
How Mortgage Loans Work
When To Pay Points
Adjustable-Rate Mortgages
How Much Can You Afford?
Mortgage Glossary

Powered By HOMES.COM

Copyright 2000, Inc. All Rights Reserved.
Click Here for Full Terms and Conditions

HOMES.COM is the largest Internet real estate site with hundreds of thousands of homes for sale and apartment rentals with photos, descriptions, and relocation services.
The advertisers, associate publishers, and publisher are not responsible or liable for misinformation, misprints, or typographical errors. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental.

Member Login