Loan-To-Value Ratio: How Your LTV Affects Your Mortgage
Loan-To-Value Ratio: How Your LTV Affects Your MortgageCalculating Your Risk of Default by Factoring in the LTV Ratio
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of the asset. The LTV ratio is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage.
The risk of default is always the real driver of underwriting and, ultimately, lending approval decisions, and the likelihood of a lender absorbing a loss increases as the amount of equity decreases.
Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much more strict. Lenders can require borrowers of high LTV loans to obtain private mortgage insurance to protect from buyer default.
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