What is a Loan-to-Value Ratio and How Can it Help You in Real Estate and Mortgage?
Buying a home or other property is a major financial decision, and it’s important to understand all the important factors that may affect your loan terms. One of the most important of these factors is the loan-to-value ratio or LTV. This ratio is a measure of how much a lender is willing to loan against a particular property compared to its value. Understanding how this ratio works can help you make the most of your mortgage and real estate investments. What Is a Loan-to-Value Ratio? Simply put, a loan-to-value ratio is the amount of money a lender is willing to loan you on a property divided by the value of that property. For example, if you’re buying a $200,000 home and the lender is willing to loan you $150,000, then your loan-to-value ratio is 75%. This ratio is important to lenders because it helps them determine how much risk they’re taking on when they approve your loan. Generally, the higher the loan-to-value ratio, the higher the risk for the lender. How Does LTV Affect Y...