What Is a Loan-to-Loan Ratio?
A loan-to-loan ratio is another term for a loan-to-value ratio. This term often comes up when home mortgages are discussed. It can be particularly relevant if you are seeking a second home loan or you want to take out a home equity loan for home improvements.
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Definition
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A loan-to-loan ratio is the amount of the loan you took out on your property divided by the appraised or current value of the property. The loan-to-value ratio is the same thing, and it is also known as the LTV ratio.
Importance
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The LTV ratio is important in determining the size of a loan you can get and whether you will have to purchase private mortgage insurance. It is also important in determining the amount of the down payment you would need to put down on a second loan. If your home loan was $100,000, and the current value of your home is $120,000, your LTV is 83 percent, meaning that you have 17 percent equity in your home. If your $100,000 loan was on a property appraised at $150,000, your LTV would decrease to about 66.7 percent, and your home equity would be about 33.3 percent.
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Higher and Lower LTV
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Lenders are wary of high LTV scores, as they represent a higher risk for the lender. The higher your LTV, the less money you may be eligible to get in a loan. The lower your LTV, the more home equity you have, and the better chance you have of getting a larger loan.
Credit Score
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Your LTV is used in conjunction with other credit measurement tools, like your credit score, to determine you eligibility for and the amount of the loan you can take out. If you have a high credit score and a high LTV, you may still be eligible for the loan you want.
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