Loan-to-Value (LTV)

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Definition of 'Loan-to-Value (LTV)'

The loan-to-value (LTV) ratio is a measure of the amount of money a borrower is borrowing relative to the value of the property they are buying. It is calculated by dividing the loan amount by the appraised value of the property. For example, if a borrower is borrowing $200,000 to buy a house that is appraised at $300,000, the LTV ratio would be 2/3, or 66.67%.

The LTV ratio is an important factor in determining the interest rate on a mortgage loan. Lenders typically charge higher interest rates on loans with higher LTV ratios because they are considered to be riskier. This is because the borrower has less equity in the property, which means that the lender is more likely to lose money if the borrower defaults on the loan.

The LTV ratio can also affect the down payment required for a mortgage loan. Lenders typically require a down payment of at least 20% of the purchase price of the property. However, some lenders may be willing to accept a lower down payment if the borrower has a high credit score and a low LTV ratio.

The LTV ratio is an important factor to consider when buying a home. By understanding the LTV ratio, you can make an informed decision about how much to borrow and what type of mortgage loan to get.

Here are some additional things to keep in mind about LTV ratios:

* The LTV ratio is not the same as the debt-to-income ratio (DTI). The DTI ratio is a measure of a borrower's total debt payments relative to their income.
* The LTV ratio can change over time as the value of the property changes. This can happen if the property appreciates in value or if the borrower makes improvements to the property.
* The LTV ratio can also change if the borrower refinances their mortgage loan.

If you are considering buying a home, it is important to talk to a lender about your LTV ratio and how it will affect your mortgage loan.

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