The mortgage down payment is a barrier faced by first-time home buyers for generations. Even if you have steady employment and good credit scores, a large down payment can be much harder to achieve. Read More
The Loan-to-Value Ratio (LTV) is a percentage used to describe a loan amount compared to a property valuation. Lenders often use LTV Ratios to determine evaluate mortgage risk, determine applicant approval, and if they’ll be required to carry mortgage insurance. In general, higher LTV ratios represent increased risk to the lender. Therefore, high LTV mortgage loans are usually required to carry mortgage insurance. The LTV ratio is contingent on a property’s appraised value, as determined by the lender and mortgage program.
Loan-to-Value is calculated several ways, depending on the purpose of the mortgage. For a home purchase loan, the LTV is calculated based upon the sales price. For a refinance, the LTV is calculated based upon the appraised value of the home. The LTV ratio for either method is determined by dividing the loan amount by either the purchase price or total appraised value of the subject property.
Example: Let’s assume you want to purchase a home that has an appraised value of $100,000. If you have $20,000 available for a down payment, then you’ll need to borrow another $80,000, or 80% of the purchase price. Therefore, your ‘Loan-to-Value’ is 80%.
Maximum Conventional LTV Ratios vary based upon several factors including mortgage type, loan purpose and the number of units in a property. Loan-to-value determines mortgage approval decisions within conventional loan requirements, and also if a borrower is required to carry Private Mortgage Insurance (PMI).
Conventional loans had maximum LTV limits of 80% historically, but that’s all changed. These days, applicants can get conventional loans with LTV ratios of up to 97%.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 97% LTV | 90% LTV |
| 2 Units Primary | 85% LTV | 75% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 90% LTV | 80% LTV |
| 1 Unit Investment | 85% LTV | 75% LTV |
| 2 Units Investment | 75% LTV | 65% LTV |
| 3 Units Investment | 75% LTV | 65% LTV |
| 4 Units Investment | 75% LTV | 65% LTV |
Rate-Term Refinance is considered any refinance where the borrower doesn’t get cash back. These no-cash-out refinance options are used to lower a homeowner’s payments and interest rate. Rate-term refinance loans usually allow higher loan-to-values than for borrowers trying to take cash out.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 97% LTV | 90% LTV |
| 2 Units Primary | 85% LTV | 75% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 90% LTV | 80% LTV |
| 1 Unit Investment | 75% LTV | 65% LTV |
| 2 Units Investment | 75% LTV | 65% LTV |
| 3 Units Investment | 75% LTV | 65% LTV |
| 4 Units Investment | 75% LTV | 65% LTV |
Cash-Out Refinance loans are used when a borrower has equity in a property they want to turn into liquid cash. Because these loans often increase lender risk, they generally employ stricter LTV ratio requirements than no-cash-out refinance loans.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 80% LTV | 75% LTV |
| 2 Units Primary | 75% LTV | 65% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 75% LTV | 65% LTV |
| 1 Unit Investment | 75% LTV | 65% LTV |
| 2 Units Investment | 70% LTV | 60% LTV |
| 3 Units Investment | 70% LTV | 60% LTV |
| 4 Units Investment | 70% LTV | 60% LTV |
FHA loans allow higher LTV ratios than most mortgage programs. Therefore, they’re considered a low down payment mortgage. Loan-to-value ratios also affect how FHA loans are priced to the consumer, and if they’re required to carry FHA mortgage insurance.
| Credit Score | Purchase Mortgage | Refinance Mortgage |
|---|---|---|
| 580+ FICO Score | 96.5% LTV | 85% LTV |
| Below 580 FICO Score | 90% LTV | 85% LTV |
While there’s no set maximum LTV for VA loans, it’s generally 100 percent. VA loan-to-value may exceed 100 percent if the veteran chooses to finance the funding fee, discount points or energy efficient improvements.
| Purchase Mortgage | Refinance Mortgage | |
|---|---|---|
| All Credit Scores | 100% LTV + Points, Fees | 100% LTV + Points, Fees |
USDA loans are a zero down payment mortgage program, which means they’re offered with LTV’s of 100%. Technically, USDA loans are offered with a maximum loan-to-value of 102% because of the 2% “Guarantee Fee” may be rolled into the mortgage amount and paid over the duration of the loan.
| Purchase Mortgage | Streamline Refinance | |
|---|---|---|
| All Credit Scores | 102% LTV | 102% LTV |
An FHA loan is a mortgage program thats’s perfect for today’s first-time home buyers. During the last decade, tightened housing regulations and poor wage growth have left many people feeling like owning a home is beyond their reach. More than ten million Americans can still hold on to their homeownership dreams thanks to flexible FHA loan requirements, which have helped over 40 million people achieve homeownership since 1934. Read More
Mortgage insurance is a protecton that guards lenders in case of applicant default. Mortgage insurance is usually required on mortgages with a down payment that’s 20 percent or less.
Plainly stated, FHA MI is required for all FHA loan programs including FHA purchase loans, FHA refinance loans and FHA Streamline refinance loans. FHA guidelines for it’s insurance programs are what lenders use to determine if applicants are eligible for a loan. These requirements are usually less demanding than other, non-insured mortgage programs. Read More
When you hear the term “closing costs”, it generally refers to a group of fees that must be paid during the settlement process. FHA Mortgage Closing Costs can include such things as lender origination fees, attorney fees, appraisal and inspection fees and more. Read More
