For 10 years, Allen Bulmash has served as a home loan processor at Destiny Mortgage Group. Allen Bulmash upholds responsibility for helping borrowers to navigate a conditional loan approval, a process that often involves securing the documentation necessary to determine loan-to-value ratio.
For home lenders, a loan-to-value (LTV) ratio represents the amount of a loan in comparison to the overall value of the property to which the loan applies. A higher LTV ratio indicates that the applicant intends to borrow a greater percentage of the home's value. This means that the borrower would own a lower percentage of the property initially, and thus have less equity in the home.
Because a borrower with a high LTV ratio is borrowing more against the property's value, he or she is mathematically more likely to default. Furthermore, if a borrower with less equity does default, the lender is less likely to be able to sell the foreclosed home for the total amount owed on the loan. These considerations make such a loan less attractive to potential lenders.
A borrower can reduce his or her LTV ratio and thus improve the chances of securing a loan or a competitive interest rate by increasing the amount of the down payment. If this is not possible, the conventional loan borrower may need to purchase private mortgage insurance. There are also a number of federal programs, including Federal Housing Administration (FHA) loans, which will often approve a higher LTV ratio.
