No matter what kind of financing you need, it’s your duty to find out as much as you can about the terms of the loan and how they affect you. In doing this, you’ll want to become familiar with the Loan-to-Value (LTV) ratio.

By understanding this principle, you’ll be better able to apply for a loan that is useful. Read below to learn more about LTV ration, what it is and how it affects you.

What Exactly is LTV Ratio?

First things first, what exactly is the LTV ratio?

This ratio is a metric that financers use when they’re making a decision about whether or not to give you money. It refers to the total dollar amount of the loan, compared with how much your home is worth in today’s market.

Understanding this ratio helps you stay up to date when it comes to your home’s current value, and what it means for your finances.

How is it Calculated?

Since this LTV ratio dictates your risk as a borrower, it’s imperative to know how it is calculated.

The formula that they used is LTV ratio = mortgage amount ÷ appraised property value. In terms of your loan approval, you’ll want to make sure that your ratio is below 80 percent.

Many loan companies have powerful resources, such as LTV calculators, which can be useful to you when you are trying to figure out what your own ratio.

Why is it Important and How Does it Affect My Loans?

Getting a handle on this ratio is crucial when you really need the lending that you are applying for.

If you’re looking for a new mortgage, this ratio might dictate the size of the down payment that you’ll need to pay in order to get approval. You might also be able to decide on some form of collateral for your loan in lieu of a down payment.

Understanding these ratios becomes important so that you can learn more about refinancing your home and getting the most out of your mortgage.

In addition to the LTV ratio, lenders will also look into things like your overall income level, your credit score, and the type of asset that you are looking to get financing for.

Certain loans allow higher LTV ratios than others. For example, USDA loans allow you to have ratios in the ballpark of 100 percent or more.

By calculating these ratios in advance, you will have a clearer picture of where you stand financially and will have some leverage once it comes time to reach out to lending professionals.

Keep Learning to Get the Most Out of Your Loans

As you can tell, the more you understand about the LTV ratio, the better you’ll be able to navigate the lending process. From here, you’ll be able to confidently reach out to professionals that can help you out.

At Deal Struck, we come up with custom financial solutions that will be advantageous to you no matter what you need.

Get in touch to learn more about our company and to see how we can help you with all your loan needs.