In some cases a home buyer may get a better rate on a first lien mortgage when the LTV is 70% or less.
Also the lower the loan to value the documentation requirement maybe reduced. Is some cases of 65% or less no documentation is required with no increase in interest rate.
Besides credit history, income, and assets, Loan-to-Value Ratio is an important aspect mortgage banks look at. It shows the lenders how much stakes the homeowner has put into the property. The lower the LTV ratio, the higher the stake the homeowner has in the home and less likely to default on the loan, which means less risk for the bank in granting the loan.
The lower your LTV, the lower your interest rate choices when refinancing.
There are now programs that will give a homeowner 103% - 107% LTV, allowing the loan to pay for the closing costs of the real estate transaction. These types of loans do have higher interest rates. The higher rates are worth paying in some cases rather than throwing your money away on rent each and every month.
Loan to Value (LTV) is defined as the ratio of the fair market value of an asset to the value of the loan that will finance the purchase. Loan-to-value tells the lender if potential losses due to nonpayment may be recouped by selling the asset. To determine your Loan to Value on your home take the current amount you owe and divide against the market value of your home. Example: If I had a debt of $250,000 and my market value today was approximately $500,000. Than I would calculate the following: $250,000 divided by $500,000 ($250,000/$500,000) to obtain approximate Loan to Value (LTV) of 50%. A real estate agent or mortgage person can help you determine your LTV if you need further assistance.
In a purchase transaction, the more money you put as a down payment, the lower your LTV will be. A lower LTV will qualify you for a lower interest rate than a higher LTV.
Many times your fico score if too low, will limit you to a maximum LTV available during the qualification process.
Loan-to-value ratio is derived from dividing the loan amount by the the property value. Property value is determined by the purchase price or the appraisal value of the property, whichever is less. Many lenders offer loan programs of up to 100% LTV to borrowers with positive compensating factors such as good credit history and low Debt-to-Income Ratios. In addition, a knowledgeable loan officer can often structure loans to accomplish 100% LTV or even 103% LTV mortgages for qualifying homebuyers.
Another commonly used term is CLTV, or combined loan to value. This references the total LTV of a combo loan. Some banks will give you a two loan combination so you don't have to pay mortgage insurance. In this case, the loan would be something like an 80%/20% or 70%/30%, both of these have a CLTV of 100% but each individual loan has its own LTV.