Definition of Loan-to-Value Ratio (LTV):

Loan To Value for Orange County Properties:

This is the ratio of the amount of money borrowed over the appraised value of the home expressed as a percentage. The difference between these two numbers is the amount of the home-buyer's down payment.

Here is a working example:

A borrower may purchase a home appraised at $600,000 with a down-payment of $120,000. This means he has a loan-to-value ratio of 80%. Or in other words, he has 20% equity in the home. The LTV is a key risk factor that lenders consider when evaluating a loan application. If a borrower's LTV is greater than 80%, the lender will either not make the loan or will most likely require him to purchase mortgage insurance (PMI), or if the loan was pre-approved to Fannie Mae or Freddie Mac guidelines they might have the option of flipping the loan to an FHA loan which only requires a 3.5% down payment but different qualifying guidelines (more lenient) than the GSE’s.

Here is another example:

If the purchase price was $800,000 but the home only appraised for $700,000, the lender would require the borrower to put down 20% of $700,000 (remember the lender will only lend on the lesser of the purchase price or the appraisal) or $140,000, for a first mortgage in the amount of $560,000.

 

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