Loan-to-Value Ratio (LTV)
The loan-to-value ratio is the percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property. The loan-to-value ratio and down payment are different ways of expressing the same set of facts. The loan-to-value ratio is calculated by taking the amount to be borrowed divided by the value of the home. The loan to value ratio is used to qualify borrowers for a mortgage, and the higher the LTV, the tighter the qualification guidelines for certain mortgage programs become. Low loan-to-value ratios are considered below 80%, and carry lower rates since borrowers are lower risk. Lenders are more likely to consider people with poor credit and financial history who have a low LTV.