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?
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.
Check out our short video below to familiarize yourself with Loan-To-Value or LTV ratios.
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.
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.
Stay tuned for an upcoming blog post where I explain 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 a home loan please don’t hesitate to reach out. I would be happy to get you in contact with one of the many great loan officers in the area.
– Dave Kennedy