Loan To Value (LTV)

Loan to Value

Loan-To-Value Ratio is commonly referred to as LTV. The LTV is the relationship between the amount owed on the mortgage and the appraised value (or sale price if it is lower) of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%).

Conventional loans require private mortgage insurance (PMI) for borrowers with an LTV ratio of more than 80% (less than 20% down payment). Private mortgage insurance is not tax deductible, even though it is included in your monthly mortgage payment  This insurance premium is lower if your LTV is slightly above 80%, and more expensive the higher your LTV.  A knowledgeable Loan Officer can creatively finance your loan, so that you can avoid PMI, and possibly have tax benefits as well.

All FHA loans  require mortgage insurance.  The mortgage insurance charge for FHA loansis .5% per year of the loan amount and is charged to the borrower every month. FHA loanswill also require an upfront mortgage insurance premium of 1.5%.

VA loans, on the other hand, do NOT require PMI.  In fact, lenders are prohibited  from requiring private mortgage insurance on VA loans. However, borrowers are required to pay a one-time funding fee on VA loans.