When you apply for a home loan, you have to think about a number of things. One of the most important things that will determine whether you get that loan is the loan-to-value ratio.
Loan to Value: A Factor in a Mortgage
Lenders look at a number of things when deciding whether or not to give a mortgage. No matter what kind of loan it is, loan to value ratios are always looked at. The loan to value ratio is just a number that tells the lender and you how much the property is worth compared to how much you are borrowing to buy it. The ratio is found by dividing the home's appraised value by the amount of the home loan requested. For example, let's say a house is valued at $200,000. If you want to borrow $160,000 to buy a house, the loan to value is 80%.
Lenders try to figure out how risky a loan is when they look at it. By risk, they are trying to figure out how likely it is that you will not pay back the loan and give them the property. One way to figure out risk is to look at the loan-to-value ratio. Simply put, the risk that the lender will be stuck with the property goes up as the loan-to-value ratio goes up. The lender will be more picky about other parts of the application, like income, credit, and so on, the higher the risk level.
When it comes to loan to value ratios, 80% is the magic number. If you can come up with enough money to put 20% down on a house, the lender will think the loan is less risky. In practical terms, the lender knows you won't walk away from your large cash down payment if you can help it. So, giving the loan is a less risky thing to do.
If you want a mortgage with a high loan-to-value ratio, you should make sure you have good credit and a strong work history. When a loan application has a loan-to-value ratio of 90% or 100%, the lender will be worried about the risk, so you can expect it to be much harder to get the loan.
The loan-to-value ratio is not as important as it used to be in the market for home loans. There are now a lot of lenders who only offer certain kinds of loans, like mortgages with a high loan-to-value ratio. If you have a high loan-to-value ratio, the best way to find the best deal is to work with a mortgage broker.
