What is a loan-to-value ratio?

A loan-to-value (LTV) ratio is an important concept in mortgage law in California. It is the ratio of the amount of a loan to the value of the asset the loan is intended to purchase. The ratio is expressed as a percentage and is calculated by dividing the loan amount by the property value. For example, if a borrower wants to purchase a house valued at $200,000 and they have a $180,000 loan, the LTV ratio is 90%. This means that the borrower has put down 10% of the purchase price as a down payment for the home. The LTV ratio is used to determine how much risk a lender is taking on when offering a loan. If a borrower has a low LTV ratio, it means the asset is more likely to cover the cost of the loan if the borrower defaults. A higher LTV ratio suggests a greater risk of the loan being unable to be paid off. In California, lenders often require borrowers to have a loan-to-value ratio of 80% or lower for a home loan in order to protect lenders from potential default. This means that borrowers would need to come up with a down payment of at least 20% of the property value in order to obtain a loan.

Related FAQs

How much of a down payment do I need for a mortgage?
What documents do I need to apply for a mortgage?
How does my credit score affect the mortgage interest rate I qualify for?
What is the best way to shop for a mortgage?
What documents do I need to provide to a lender to qualify for a mortgage?
Are there any tax incentives for mortgages?
How can I protect my rights as a mortgage borrower?
What is a mortgage-backed security (MBS)?
What is the effect of pre-payment penalties on a mortgage?
What is the role of the mortgage broker in the mortgage process?

What is a loan-to-value ratio?

Related FAQs

Related Blog Posts