What the heck does “loan-to-value” mean?


There are lots of terms we use in the mortgage industry that aren’t part of everyday parlance. Today, I’ll talk a little bit about “loan-to-value”, or LTV for short.

In fact, I have a video that’s less than 90 seconds long if you’re in a hurry:

Loan-to-value

So, just to recap what I said in the video, your loan-to-value is the percentage of your home’s value that you finance with your home loan.

Whether you a purchasing a home, or refinancing your existing mortgage, LTV is an extremely important factor in making an educated decision about your home loan.

I’ll give you an example:

FHA – When purchasing a home using an FHA home loan, you can finance up to 96.5% of the appraised value of the property. If you are refinancing, you have two options: “rate & term” or “cash-out”. Rate & term means you are refinancing to lower your rate or change the length of your loan. A rate & term refinance is capped at a 97.75% LTV for FHA. Cash-out FHA refinances are limited to 85 per cent of the value of your home. If your current mortgage is an FHA loan, you can refinance with an FHA streamline, which does not have an LTV limitation.

So your needs define your loan-to-value, which helps define what home loan program you are going to apply for.

If you would like to learn more about loan-to-value, other mortgage terminology, or home loans in Oregon and Washington, I invite you to visit my site or contact me. I am long on answers and short on sales pitches 🙂

Thanks for taking a minute to read this post!

Picture: Jason HillardJason Hillard – homeloanninjas.com

Mortgage Advisor in Oregon and Washington MLO#119032

Pinnacle Mortgage Bankers

a div of Pinnacle Capital Mortgage Corp

503.799.4112

jason@mypmb.us

1706 D St Vancouver, WA 98663

NMLS 81395 WA CL-81395

Equal Housing Lender

Fha Loan Limits Get More Flexible, Thetruthaboutmortgage.com


Logo of the Federal Housing Administration.

Image via Wikipedia

A FHA loan requirement that the sum of all liens not exceed the maximum geographical loan limit has been eliminated, according to a Mortgagee Letter from HUD.

Previously, the sum of all liens (first and second mortgages) could not exceed the geographical maximum mortgage limit for both purchase and refinance transactions.

In other words, even if the first mortgage was below the maximum loan limit, an associated second mortgage could push it beyond the limit and disqualify the loan from FHA financing.

For example, in Los Angeles county the maximum loan amount for a FHA loan is $729,750, meaning a loan of that size wouldn’t qualify for FHA financing if it had a second mortgage behind it.

Going forward, only the FHA-insured first lien is subject to this maximum loan limit.

However, FHA still requires that the combined loan amount of the FHA-insured first mortgage and any subordinate lien(s) not exceed the applicable FHA loan-to-value (LTV) ratio, which is generally 96.5 percent.

The FHA has made a number of changes recently to improve its balance sheet, including the introduction of a minimum credit score requirement and higher mortgage insurance premiums.

FHA loans accounted for a staggering 37 percent of all first mortgages in 2009, up from 26 percent in 2008 and just seven percent in 2007.