What is LTV?
This is one of the acronyms that you will hear many, many times during your home loan process. This is especially true if you’re refinancing (no particular reason, it just seems to come up more). LTV stands for Loan to Value ratio. This is how lenders represent how much you are borrowing vs. your home’s appraised value. For example, if your home is valued at $100,000 and you are borrowing $80,000, then your LTV is 80% (loan amount/home value = LTV). So if someone says you can borrow up to 90%, then they are referring to your LTV, which is 90%.
One potentially tricky thing to note is that when you’re in a purchase transaction, the LTV is based not on the appraised value, but rather the sales price of the home. Your appraised value has to at least support the purchase price, but if the appraised value is higher than your purchase price, it does not really provide you any immediate benefit as far as the terms of your loan are concerned. If you are approved for a 90% LTV loan, you can only borrow up to 90% of the purchase price of the home, not the appraised value.
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