LTV refers to the Loan to value ratio it is most common accounting term used by the banks nowadays before it allocates loan to the borrower. LTV is commonly used by property dealers and banks before the lender assigns loan to the borrower.
We will discuss more on LTV in the later article but first clears your concept about the LTV by providing one example.
Let’s take an instance if someone borrows 200,000 in order to purchase a house worth 300,000, the LTV ratio in this case is expressed as 200,000/300,000, LTV=66.66%. The remaining 33.34% showcase the lender’s haircut (In financial term haircut is described as the current market value of an asset and the value assigned to that asset with an objective to calculate the loan collateral or regulatory capital).
The higher is LTV ratio the more it is difficult for the lender to pay back the loan. The lower the LTV the much is the easiness for the lender to pack back the loan.
Risk in LTV
LTV is the key value that the lender calculates before giving a loan to the borrower. The risk of non-payment or bank-default is always at the core of the lending decisions while the lender is more likely to suffer loss as the number of equity increases. Therefore, as the LTV Ratio made increment the guidelines for the borrower to qualify for the loan becomes stricter.
Normally LTV Ratio lower than 80% is considered as Good LTV. Higher LTV Ratio is dedicated to the borrowers with great credit scores and agreeable contract history. Full financing or 100% LTV Ratio is dedicated to the high class notable borrowers. The LTV Ratio higher than 100% is underwater contracts.
LTV Ratio Calculation
The LTV is calculated based on the following formula.
LTV=Contract Amount/Evaluated Property Value.
Factors Impacting the LTV Value
The following factors have influence on LTV Value.
- Down Payment
- Contract or Sales Price
- Evaluated Value
In order to achieve the lowest and best possible LTV value, low both payment and sales price. For example, you want to buy a house estimated at $90,000 but the owner of the house is willing to sell it $80,000.
You make a $10,000 down payment now the loan is only $70,000. It will result in LTV ratio of 70,000/90,000 =78%. If you further make the down payment of 20,000 the LTV ratio in this scenario will be 60,000/90,000=67%.
You have noticed from the above example if you increase the down payment it results in a decrement in the LTV value. If you lower your LTV, more are the chances that your loan will get approved. Lower the LTV, lesser are the chances that you need to purchase Private Contract Insurance.
Types of LTV and Loan Types
There are three types of LTV Ratios and its associated loan types.
- FHA Loans
- VA and USDA Loans
- Fannie and Freddie Mac
We will discuss all one by one.
FHA Loans are granted on the ratio of 96.5%. it requires a premium contract insurance that lasts as long as a particular loan applied to you regardless of the downfall of the LTV Ratio. Nowadays most people re-subscribe to a normal loan once the LTV value ranges 80% in order to eradicate the premium insurance plan.
VA and USDA Loans
VA and USDA loans are available to the former as well as current military personals and those to the people in rural areas respectively. Even if the LTV Ratio goes higher than 100% there is still not a need for the premium insurance plan. Besides such types of loans also don’t have any additional fees.
Fannie and Freddie Mac
Fannie and Freddie Mac are the loan programs for low salary people and allotted on an LTV ratio of ninety-seven percent with three percent down payment. However, it requires contract insurance as the ratio falls to 80%.
Calculate your LTV with the Prepostseo online LTV Calculator
The online LTV Calculator of the Prepostseo.com allows you to calculate any type of LTV mentioned above. This tool provides you with the exact LTV Ratio and is applicable in a wide range of financial decisions and allows you to solve your financial matters wisely.
The simplicity of this tool makes it the world’s best LTV Calculator. The tool is designed with the help of LTV experts (such as bank officers, customers, and insurance policy designers) and provides you with the exact LTV within milliseconds.
The tool is helpful for lenders as well as borrowers as it is the most appropriate tool in the market and provides precise and accurate values helpful both the parties to adopt intelligent financial choices.
Working of Prepostseo LTV Calculator
The working of the LTV Calculator of the Prepostseo is very simple. Three types of options are provided to you in the main box. The ones are.
- Deposit Amount-To Calculate LTV and Loan Amount
- Loan Amount-To Calculate LTV and Loan Amount
- LTV to Calculate Loan Amount and LTV Amount
You have to select one of the relevant options. After selecting the option, the next box will demand from you the purchase price and the deposit amount.
Purchase price means the price at which you are buying the particular thing where as the deposit amount refers to the down payment i.e. the payment which you have made.
After entering all the above mentioned essentials, the tool within seconds will provide you the loan amount as well as the deposit amount.
The best thing about this tool that distinguishes it from the others is that it requires no sign-in or sign-up option. Besides it will charge nothing from you to calculate your LTV Ratio. The tool is free and available to the public without any discrimination.
We have discussed the LTV in detail as well as also provide you with one of the best LTV Calculator in the market. It is recommended to use this tool if you want to calculate the exact LTV value without any errors or mistakes.