Loan To Value (LTV)

The loan to value ratio, or LTV, is a measure of leverage that a borrower is using when purchasing a home.  It can be calculated by dividing the loan balance on the first mortgage by the appraised property value.  LTV is a key ratio used by lenders to assess the risk associated with the borrowers mortgage.  Naturally, a higher LTV will increase the lenders risk and a lower one will decrease that risk.

LTV plays a factor in the types of loans that a borrower may qualify for or even the interest rates that they receive.  In most cases, a first mortgage which has an LTV higher than 80% will require PMI, or private mortgage insurance, to protect the lender against default.  This will be charged to the borrower and will increase the monthly payments on the mortgage.

Combined Loan to Value Ratio (CLTV)

The combined loan to value ratio, CLTV, measures leverage in terms of all outstanding liens against a property.  Many borrowers will take out HELOCs as a way of sidestepping PMI.  Basically, they will write a first morgage loan for 80% of the homes value and then use a HELOC to finance the balance.  In the case of multiple liens, lenders will use CLTV as a leverage guide rather than LTV.

LTV & Conforming Loan Limits


Freddie Mac & Fannie Mae are instrumental in keeping mortgage rates low and allowing for the creation of longer termed mortgages, such as the 30 year mortgage.  They are government sponsored entities which buy mortgages from banks; thereby, removing long term liabilities off the bank's balance sheet and enabling them to continue writing new mortgages.  You will hear the term "conforming"; conforming basically means that the banks will be able to write you the loan at a better rate because you fall within the underwriting guidelines that are required in order for Freddie/Fannie to buy your mortgage from the bank.  

LTV, credit score, and debt to income ratio are key in approving borrowers for conforming loans.  There are many products that Freddie & Fannie offer, each one with different guidelines.  Each product will have their LTV guidelines established and this is why your LTV/CLTV score is very important.  There are products that require an LTV of 80% or less and there are products that even allow your CLTV to be 100%.
Tim Ord
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