LTV: Loan-to-Value: what it means

So you’re getting ready to buy a your dream home but you need a loan. You start doing a little research and your head starts to spin. You hear terms like loan-to-value ratios and PMI and wonder what the heck does this all mean?  Even though we work on the title end of things, we can still help you wrap your head around some terms.

It’s really not as confusing as it all sounds. With a little time, you can familiarize yourself with a few of these terms. While you might not become an expert, you can certainly have an understanding of what’s going on in your transaction.  A good term to go ahead and start with is Loan-to-Value Ratio

Keeping it Simple

Very simply put, your LTV ratio is an assessment of lending risk your bank (lender) examines before approving you for a mortgage. Put another way: the LTV ratio tells you how much of a property you truly own compared to how much you owe. The ratio is used for both home loan purchases as well as refinances. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyer’s are required to pay out of pocket at closing.

LTV Assessments

Typically, assessments with high LTV ratios are considered higher risk for the lender and, therefore, if the mortgage is approved, the loan costs the borrower more and often times require the borrower to purchase private mortgage insurance or PMI.

As always, we are here to answer your questions. If you need any more info on LTV’s or would like to discuss specifics of this terminology please don’t hesitate to reach out. We at Crossland Title Inc. would be happy to get you in contact with you.  Or you can message us through our Facebook page!