Loan-to-value ratio compares the mortgage amount with the value of the property used for underwriting purposes.
Simple Example
A $360,000 mortgage on a $400,000 value produces a 90% LTV.
Why LTV Matters
- Mortgage insurance
- Interest-rate pricing
- Loan eligibility
- Refinance eligibility
- Available programs
Purchase Price and Appraisal
The lender’s calculation may depend on the relationship between the purchase price and appraised value. A low appraisal can materially affect the financing structure.
Homebuyer takeaway: Higher LTV generally means more leverage and less initial equity. Lower LTV generally means less leverage and more starting equity.
Sources
Fannie Mae Mortgage Insurance Coverage Requirements