How to Get the Loan-To-Value Ratio on Equity Loan
The loan-to-value (LTV) ratio is one of the key numbers that a home-equity lender considers when evaluating your home-equity loan application. As it sounds, the ratio compares the total amount owed on all loans to the fair-market value of the home. A higher ratio leads to a higher risk for the lender because the lender could lose money if the home's value drops and the borrower fails to repay the loan. If the loan-to-value ratio is lower, the money obtained from the sale of the home is more likely to be enough to repay all loans secured by the home.
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Instructions
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Have the home professionally appraised. If you have an appraisal done within the last six months, this might be sufficient. You can also estimate the loan-to-value ratio by guessing at the home's sale price in the current real estate market. Recent sale prices of similar homes in the area provide guidelines for your home's value. For example, your appraisal might place your home's value at $219,500.
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Find the outstanding balance on your primary mortgage by looking it up on your most recent mortgage statement or calling your lender. The outstanding balance is sometimes called the "principal balance" or the "amount owed." For example, you might owe $134,388.
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Add the amount of your home-equity loan to the outstanding balance of your primary mortgage. This can be either the outstanding balance on your current equity loan, the amount you would like to borrow or both. For example, if you want to borrow $40,000, your total of all loan balances would be $174,388 --your $134,388 balance plus the $40,000.
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Divide the total loan balances by the value of your home to calculate the LTV. In this case, $174,388/$219,500 is 0.79.
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Multiply the ratio by 100 to express it as a percent. In this case, 0.79 is 79 percent. This means that the loans are 79 percent of the home's value. The remaining 21 percent of the home's value is your equity.
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Tips & Warnings
Most home-equity loans require the total loan-to-value ratio to be no more than 0.8 or 80 percent. This protects the lender's investment. If the lender agrees to a loan that would make the LTV more than 80 percent, it generally charges higher interest rates.
