Loan to value
The loan-to-value (LTV) ratio expresses the amount of a first
mortgage lienas a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87%.
Loan to value is one of the key
riskfactors that lendersassess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosureprocess increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much more strict. Lenders can require borrowers of high LTV loans to buy mortgage insuranceto protect the lender from the buyer default, which increases the costs of the mortgage.
The valuation of a property is typically determined by an
appraiser, but there is no greater measure of the actual real value of one property than an arms-length transaction between a willing buyer and a willing seller. Typically, banks will utilize the lesser of the appraised value and purchase price if the purchase is "recent." What constitutes recent varies by institution but is generally between 1–2 years.
Low LTV ratios (below 80%) carry with them lower rates for lower-risk borrowers and allow lenders to consider higher-risk borrowers, such as those with low credit scores, previous late payments in their mortgage history, high debt-to-income ratios, high loan amounts or
cash-outrequirements, insufficient reserves and/or no income documentation. Higher LTV ratios are primarily reserved for borrowers with higher credit scores and a satisfactory mortgage history. The full financing, or 100% LTV, is reserved for only the most credit-worthy borrowers.
In the United States, conforming loans that meet
Fannie Maeand Freddie Mac underwritingguidelines are limited to an LTV ratio that is less than or equal to 80%. Conforming loans above 80% are subject to private mortgage insurance. For properties with more than one mortgage lien, such as stand-alone seconds and home equity lines of credit ( HELOC), the individual mortgages are also subject to combined loan to value (CLTV) criteria. The LTV for the stand-alone seconds and HELOCs would simply be their respective loan balance as a percentage of the total appraised value of real property. However, in order to measure the riskiness of the borrower, one should look at all outstanding mortgage debt as a percentage as a percentage of the total appraised value of real property (CLTV).
Combined Loan To Value: (CLTV) ratio
The term "Combined" Loan To Value" adds additional specificity to the basic Loan to Value which simply indicates the
ratiobetween one primary loan and the property value. When "Combined" is added, it indicates that additional loans on the property have been considered in the calculation of the percentageratio.
The aggregate principal balance(s) of all mortgages on a property divided by its
appraised valueor Purchase Price, whichever is less. Distinguishing CLTV from LTV serves to identify loan scenarios that involve more than one mortgage. For example, a property valued at $100,000 with a single mortgage of $50,000 has an LTV of 50%. A similar property with a value of $100,000 with a first mortgage of $50,000 and a second mortgage of $25,000 has an aggregate mortgage balance of $75,000. The CLTV is 75%.
Combined Loan to Value is an amount in addition to the Loan to Value, which simply represents the first position
mortgageor loan as a percentage of the property's value.
* [http://www.investopedia.com/terms/l/loantovalue.asp Investopedia.com page on loan to value]
Wikimedia Foundation. 2010.
Look at other dictionaries:
loan to value — ( LTV) This is the ratio between the size of the loan you are seeking and the mortgage lenders valuation of the property … Financial and business terms
loan-to-value — ( LTV) This is the ratio between the size of the loan you are seeking and the mortgage lenders valuation of the property … Financial and business terms
loan to value — /ˌləυn tə vælju:/ noun the amount of a mortgage expressed as a percentage of the value of the property. Abbreviation LTV … Dictionary of banking and finance
loan-to-value ratio — loan to value ( LTV) ratio The name used to refer to a credit analysis ratio that measures collateral coverage. To calculate the LTV ratio, the total amount of the borrower s obligations to the bank is divided by the total calculated value for… … Financial and business terms
Loan-to-value ratio — The loan to value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower borrows $130,000 to purchase a house worth $150,000, the LTV ratio is… … Wikipedia
Loan-To-Value Ratio - LTV Ratio — A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the… … Investment dictionary
loan to value ratio — relation between the amount of a property loan in comparison with the value of the property it was used to purchase … English contemporary dictionary
loan-to-value ratio — (LTV) The ratio of the amount of money borrowed to the fair market value of the asset against which the loan is secured … American business jargon
loan to value ratio — Fin the ratio of the amount of a loan to the value of the collateral for it … The ultimate business dictionary
Loan-to-value ratio — (LTV) отношение суммы кредита к рыночной (или оценочной) стоимости залога. Чем ниже этот коэффициент, тем больше вероятность того, что при обращении взыскания выручка от продажи залога покроет расходы кредитора по предоставленной ссуде … Ипотека. Словарь терминов