There is a great deal of information first time home buyers need to know during the process of purchasing their first home. One term first time home buyers can familiarize themselves with is LTV and its importance.
What is LTV?LTV is an acronym that stands for loan-to-value, which is a ratio that describes the amount of the loan to the value of the property. In order to obtain this ratio, one must divide the amount of the loan and the sale of the property's price or the appraisal value of the property. In most cases, the lower of the two amounts is used to calculate the loan-to-value ratio, which is a percentage. If a mortgage has a high LTV, then the funds that are loaned are high in relation to the down payment or the equity.
Why Does a LTV Matter When Buying a Home?When purchasing your first home, a LTV is an important consideration. If the ratio is high, then it will have an impact on the risk of the loan, the fees, and the interest rate. The ratio will also determine if a first time buyer will have to invest in private mortgage insurance.
What is Considered a High LTV?In most cases, the LTV is high if it is 80 percent or higher. If a first time buyer has a LTV of 80 percent, then he or she will be paying 20 percent down on the property. If the LTV is above 100 percent, a buyer is borrowing more money than the home is worth.
Can a First Time Buyer Lower the LTV? To lower a high LTV, a potential home owner will have to look for a home that is not valued as high or produce a larger down payment. These two ways are the only sure way to lower the LTV because the ratio is determined on the value of the home and how much a potential homeowner needs to borrow.
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