What is a loan-to-value ratio?

A loan-to-value (LTV) ratio is a critical factor in mortgage lending in Virginia. It is the comparison between the size of a loan and the appraised value of a property that is being used to secure the loan. Specifically, the LTV ratio is the size of the loan compared to the market value of the property. For example, if a home is appraised at $100,000 and the loan amount is $80,000, then the LTV ratio is 80%. Lenders use this ratio to determine how much money they can lend and at what interest rate. The higher the LTV ratio, the greater the risk for the lender. For this reason, many lenders require a lower LTV ratio than the stated maximum when approving a loan. Lower LTV ratios enable lenders to reduce the amount of money they can lend and spread out the risk of default. In Virginia, lenders often require a down payment of at least 5% of the home’s price. This means that a lender would not be able to exceed a 95% LTV ratio when approving a loan. The LTV ratio is an important element of mortgage lending in Virginia. It is used to measure the borrower’s risk and also serves as a guide for lenders in determining the size of loan they are willing to approve and the interest rate they will charge.

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What is a loan-to-value ratio?

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