Definition of LTV
What is LTV? LTV, or Loan to Value Ratio, is a comparison between the value of your loan and the value of your home, used to determine lending risk before approving a mortgage.
History and Origins
LTV is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. To determine the LTV, a lender will divide the loan amount by the lesser of the home's appraised value or purchase price. The qualification guidelines for certain mortgage programs may become stricter as the LTV ratio of a loan increases.
Real Life Applications
Lower LTVs are considered to be less risky, and a higher LTV can result in a borrower having to pay mortgage insurance. Mortgage insurance may be required to protect the lender from any buyer default, which can increase the cost of the mortgage.
The Last Word
An LTV is only one of the criteria used to assess mortgages. Your lender will be able to walk you through all the factors and help you understand how an LTV will impact you.