How to Figure Out Loan to Value Ratio
The loan to value ratio (LTV) is an indicator used by lenders to quickly determine the percentage of a property's value that is mortgaged. LTV is the value of the loan in relation to the value of the property. Generally speaking, the higher the LTV, the more the borrower owes in relation to the property's value. Lenders look more favorably on financing a property with a lower LTV than a high one.
Other People Are Reading
Instructions
-
-
1
Determine a property's loan amount. This is either the sales price of the property, less any down payment, or the current principal balance on the property's mortgage.
-
2
Calculate the value of the property. There are two basic methods of determining a property's value: tax value and appraised value. The tax value is typically lower than the appraised value; however, if the LTV is projected to be low, the tax value should suffice. The tax value is listed on the property tax bill. The appraised value is listed on a property appraisal.
-
-
3
Divide the loan amount into the property's value. Multiply the figure by 100 to get the result as a percentage. For example, if the loan amount is $100,000 and the home's value is $150,000, divide 100,000 into 150,000 to get a result of .66667. Multiply .66667 by 100 to determine an LTV of 66.667 percent.
-
1
Tips & Warnings
Lenders use the LTV to determine how much of the property's value is tied up in debt. Borrowers with higher LTVs are considered to be more likely to default. If you are worried that you have a high LTV, ask your lender to order an appraisal on the property as opposed to using the tax value of the property.
If the value of your property has fallen in recent years, you could be "upside down" in your mortgage debt. This occurs when the borrower owes more than the property is worth. In this case, refinancing will be hard, if not impossible.
References
- Photo Credit property image by Christopher Hall from Fotolia.com
