Loan To Value Mortgage RatioLoan to value ratio, often abbreviated LTV ratio is the relationship between the amount of money a mortgage lender is willing to loan and the lender's estimate of the fair market value of the property that will be pledged as security. For example, a prospective home buyer wants to purchase a house priced at $80,000. A local mortgage lender appraises the house, finds it has a fair market value of $80,000, and agrees to make an 80% LTV loan. This means that the lender will loan up to 80% of the $80,000 and the buyer must provide at least 20% in cash. In dollars, the lender will loan up to $64,000 and the buyer must make a cash down payment of at least $16,000. If the lender appraises the home for more than $80,000, the loan will still be $64,000. If the appraisal is for $80,000 and the buyer is paying $85,000, the loan will be 80% of the appraised value and the buyer must pay the balance of $21,000 in cash. The rule is that price or value, whichever is lower, is applied to the LTV ratio. For residential, first mortgage liens in the US to be conforming to Fannie Mae guidelines the LTV must be less than or equal to 80%. |