1. What is Loan-to-Value (LTV) Ratio?

The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. It's commonly used in mortgage lending to assess the risk of a loan.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• Loan Amount — The amount of money being borrowed
• Property Value — The appraised value or purchase price of the property

Explanation: The LTV ratio compares the size of the loan to the value of the property, expressed as a percentage.

3. Importance of LTV Ratio

Details: Lenders use LTV to evaluate lending risk. Lower LTV ratios generally mean better loan terms and interest rates. Most conventional loans require LTV ratios of 80% or less to avoid private mortgage insurance.

4. Using the Calculator

Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers. The calculator will compute the LTV ratio as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Generally, an LTV of 80% or lower is considered good and may qualify for better interest rates. Above 80% typically requires PMI (Private Mortgage Insurance).

Q2: How does LTV affect mortgage approval?
A: Higher LTV ratios are riskier for lenders, potentially leading to higher interest rates or loan denial. Lower LTV ratios improve approval chances and terms.

Q3: Can LTV change over time?
A: Yes, as you pay down your mortgage or if property values change, your LTV ratio will change accordingly.

Q4: What's the maximum LTV ratio for a mortgage?
A: Conventional loans typically max at 97% LTV, FHA loans at 96.5%, and VA loans at 100% LTV.

Q5: How can I lower my LTV ratio?
A: You can lower your LTV by making a larger down payment, choosing a less expensive property, or waiting for property values to increase.