There are many things a lender must consider before approving your application for a loan. One of the most important considerations is a metric called the loan-to-value ratio (LTV).
LTV is two numbers that compare the value of a loan with the value of the property the loan is being used for. For example, if you want to buy a property worth $400,000 and you need a loan for $300,000, your LTV is 75 percent because the loan value, $300,000, is 75 percent of the value of your $400,000 home. The higher the LTV the larger the loan or mortgage you need to buy a property.
The LTV calculator an incredibly useful tool for borrowers and lenders alike.
The LTV is considered by lenders to be an effective indicator of the riskiness of a borrower. A higher LTV means higher risk to the lender. A low LTV (e.g. 35 percent) indicates that you are a less risky borrower. From the perspective of a lender, a low LTV suggests that you have earned or saved enough money to manage most of the purchase yourself, and therefore you are likely better able to maintain the loan’s required payments compared to someone with a high LTV. A high LTV will often result in higher interest rates and fees for a loan or mortgage due to the added level of risk for the lender.
By knowing your LTV, you can make an educated estimate about what kinds of funds you could receive from different lenders.
Major financial institutions like banks and Credit Unions calculate a combination LTV as well as your credit score and, income to determine if you are eligible for approval of a loan or mortgage.
Private lenders approve loans based on home equity alone, and they use LTV to determine if you meet their requirements.
While major financial institutions have several requirements for loan approval, private lenders require your home equity and use the location of your home to determine the maximum amount of equity you can use to secure the loan.
Communities with a population below 30,000 are considered small towns. If you home is in a small town, private lenders can secure loans up to 65 percent of your home’s LTV.
Mid-sized cities have a population between 30,000 and 200,000 with large cities having 200,00 plus residents. Private lenders can provide loans up to 70 percent of your home’s LTV in mid-sized cities and up to 75 percent LTV in large cities.
Remember the LTV is just a comparison of the value of your home and the loan you secure with it. As you pay off your mortgage or loan your LTV will go down.
With the LTV calculator you can find out if you qualify for a private loan and how much you could borrow based on your home equity. This information can help you better negotiate with a fair deal with a lender.
Knowing what kind of financing you can get and what it will cost each month can help you prepare a budget to manage your required payments, reducing the chances that you miss or make a late payment.
With this information you can strategize how you can buy a home, renovate, consolidate debt and make investments.
To calculate your LTV, follow the simple steps in the LTV calculator. Enter the estimated value of the home you are interested in, your requested loan amount, and the type of mortgage you want in the three text fields below, then click the button ‘Calculate Your Loan-To-Value Ratio’. The calculator will give you an instant result.
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.