is ltv of 50 good?

As a rule of thumb, a good loan-to-value ratio should be no greater than 80%. Anything above 80% is considered to be a high LTV, which means that borrowers may face higher borrowing costs, require private mortgage insurance, or be denied a loan. LTVs above 95% are often considered unacceptable.

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher-risk loans. Therefore, if the mortgage is approved, the loan has a higher interest rate.

Additionally, a loan with a high LTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender. This type of insurance is called private mortgage insurance (PMI).

Interested homebuyers can easily calculate the LTV ratio of a home. This is the formula:

L T V r a t i o = M A A P V where: M A = Mortgage Amount A P V = Appraised Property Value \begin{aligned}

An LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage. For example, if you buy a home appraised at $100,000 for its appraised value, and make a $10,000 down payment, you will borrow $90,000. This results in an LTV ratio of 90% (i.e., 90,000/100,000).

Determining an LTV ratio is a critical component of mortgage underwriting. It may be used in the process of buying a home, refinancing a current mortgage into a new loan, or borrowing against accumulated equity within a property.

Lenders assess the LTV ratio to determine the level of exposure to risk they take on when underwriting a mortgage. When borrowers request a loan for an amount that is at or near the appraised value (and therefore has a higher LTV ratio), lenders perceive that there is a greater chance of the loan going into default. This is because there is very little equity built up within the property.

As a result, in the event of a foreclosure, the lender may find it difficult to sell the home for enough to cover the outstanding mortgage balance and still make a profit from the transaction.

A LTV ratio is only one factor in determining eligibility for securing a mortgage, a home equity loan, or a line of credit. However, it can play a substantial role in the interest rate that a borrower is able to secure. Most lenders offer mortgage and home-equity applicants the lowest possible interest rate when their LTV ratio is at or below 80%.

A higher LTV ratio does not exclude borrowers from being approved for a mortgage, although the interest on the loan may rise as the LTV ratio increases. For example, a borrower with an LTV ratio of 95% may be approved for a mortgage. However, their interest rate may be a full percentage point higher than the interest rate given to a borrower with an LTV ratio of 75%.

If the LTV ratio is higher than 80%, a borrower may be required to purchase private mortgage insurance (PMI). This can add anywhere from 0.5% to 1% to the total amount of the loan on an annual basis. For example, PMI with a rate of 1% on a $100,000 loan would add an additional $1,000 to the total amount paid per year (or $83.33 per month). PMI payments are required until the LTV ratio is 80% or lower. The LTV ratio will decrease as you pay down your loan and as the value of your home increases over time.

In general, the lower the LTV ratio, the greater the chance that the loan will be approved and the lower the interest rate is likely to be. In addition, as a borrower, it's less likely that you will be required to purchase private mortgage insurance (PMI).

While it is not a law that lenders require an 80% LTV ratio in order for borrowers to avoid the additional cost of PMI, it is the practice of nearly all lenders. Exceptions to this requirement are sometimes made for borrowers who have a high income, lower debt, or have a large investment portfolio.

For example, suppose you buy a home that appraises for $100,000. However, the owner is willing to sell it for $90,000. If you make a $10,000 down payment, your loan is for $80,000, which results in an LTV ratio of 80% (i.e., 80,000/100,000). If you were to increase the amount of your down payment to $15,000, your mortgage loan is now $75,000. This would make your LTV ratio 75% (i.e., 75,000/100,000).

Different loan types may have different rules when it comes to LTV ratio requirements.

FHA loans are mortgages designed for low-to-moderate-income borrowers. They are issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA).

FHA loans require a lower minimum down payment and credit scores than many conventional loans. FHA loans allow an initial LTV ratio of up to 96.5%, but they require a mortgage insurance premium (MIP) that lasts for as long as you have that loan (no matter how low the LTV ratio eventually goes).

Many people decide to refinance their FHA loans once their LTV ratio reaches 80% in order to eliminate the MIP requirement.

VA and USDA loans—available to current and former military or those in rural areas—do not require private mortgage insurance even though the LTV ratio can be as high as 100%. However, both VA and USDA loans do have additional fees.

Fannie Mae's HomeReady and Freddie Mac's Home Possible mortgage programs for low-income borrowers allow an LTV ratio of 97%. However, they require mortgage insurance until the ratio falls to 80%.

For FHA, VA, and USDA loans, there are streamlined refinancing options available. These waive appraisal requirements so the home's LTV ratio doesn't affect the loan. For borrowers with an LTV ratio over 100%—also known as being "underwater" or "upside down"—Fannie Mae's High Loan-to-Value Refinance Option and Freddie Mac's Enhanced Relief Refinance are also available options.

While the LTV ratio looks at the impact of a single mortgage loan when purchasing a property, the combined loan-to-value (CLTV) ratio is the ratio of all secured loans on a property to the value of a property. This includes not only the primary mortgage used in LTV but also any second mortgages, home equity loans or lines of credit, or other liens.

Lenders use the CLTV ratio to determine a prospective home buyer's risk of default when more than one loan is used—for example, if they will have two or more mortgages, or a mortgage plus a home equity loan or line of credit (HELOC). In general, lenders are willing to lend at CLTV ratios of 80% and above and to borrowers with high credit ratings. Primary lenders tend to be more generous with CLTV requirements since it is a more thorough measure.

Let's look a little closer at the difference. The LTV ratio only considers the primary mortgage balance on a home. Therefore, if the primary mortgage balance is $100,000 and the home value is $200,000, LTV = 50%.

Consider, however, the example if it also has a second mortgage in the amount of $30,000 and a HELOC of $20,000. The combined loan to value now becomes ($100,000 + $30,000 + $20,000 / $200,000) = 75%; a much higher ratio.

These combined considerations are especially important if the mortgagee defaults and goes into foreclosure.

Basically, your loan-to-value (LTV) ratio is the flip side of your down payment, assuming that the purchase price equals the appraised value of the home. So if you are putting down 20%, your LTV is 80%. If there is a difference between the appraised value and the price you agreed to pay, the lender will use the lower number to calculate your LTV (loan amount divided by appraised value or purchase price). This is true whether you are buying or refinancing. With an LTV of 80% or lower, you are eligible for lower mortgage/refi rates and more favorable terms. You can take several steps to lower your LTV, including working with a financial advisor to boost your savings and make a larger down payment.

The loan-to-value (LTV) ratio is the percentage of your home’s appraised value (or purchase price if it is lower) that you are borrowing. To calculate your LTV ratio, take your mortgage amount and divide it by the purchase price or appraised value of the home, whichever is lower. Then multiply by 100 to turn the ratio into a percentage.

Say you’re buying a $300,000 home and taking out a $250,000 loan. To calculate your LTV, divide 250,000 by 300,000; then multiply the result by 100. The result: your LTV is 83.3%. When you subtract the LTV from 100%, you typically get your down payment expressed as a percentage.

The principle of loan-to-value is highly dependent on what kind of mortgage you’re getting. That’s because each of these loan types require specific things from homebuyers. As a result each, lender may have their own specific requirements, so check around for your best option. Below is a breakdown of the common LTV stipulations around the mortgage space:

If you’re applying for a conventional mortgage loan, a decent LTV ratio is 80%. That’s because many lenders expect borrowers to pay at least 20% of their home’s value upfront as a down payment.

Mortgage loans backed by the Federal Housing Authority (FHA) come with a different set of rules. For homebuyers who are trying to qualify for an FHA loan, an acceptable loan-to-value ratio is 96.5% if your credit score is at least 580. If your credit score falls between 500 and 579, your LTV ratio can’t be higher than 90%.

For example, if you’re buying a home with an appraisal of $200,000, your loan can’t be more than $180,000. That means a minimum $20,000 down payment so that you stay at 90% LTV ratio.

If you’re applying for a loan that does not require a down payment such as a USDA loan or VA loan, your LTV ratio can be as high as 100%. Of course, you’ll need to meet other qualifications in order to be eligible for these kinds of mortgages, such as income requirements and property location rules or specific military status.

Borrowers who are refinancing may or may not need a specific LTV ratio. For example, if you’re refinancing through the federal Home Affordable Refinance Program (HARP), your LTV ratio must be higher than 80%. But if you’re looking for an FHA streamline refinance, there are no LTV ratio limits.

The higher your LTV ratio, the higher the mortgage rate you’ll be offered. Why? With a higher LTV, the loan represents more of the value of the home and is a bigger risk to the lender. After all, should you default on the loan and your home goes into foreclosure, the lender will need the house to sell for more to get its money back. Put another way, in a foreclosure, your down payment is the “haircut” the lender can take on the sale price of your house. So the smaller the haircut (or your down payment), the less likely the lender will get all of its money back.

Additionally, when your LTV is high and your down payment is relatively small, you have less to lose if you default and walk away from the loan (and home). In other words, you’re more likely to stick around if you put down 20% down than a 3%.

Having a high LTV ratio can affect a homebuyer in a couple of different ways. For one thing, if your LTV ratio is higher than 80% and you’re trying to get approved for a conventional mortgage, you’ll have to pay private mortgage insurance (PMI). Fortunately, you’ll eventually be able to get rid of your PMI as you pay down your mortgage. Your lender must terminate it automatically when your LTV ratio drops to 78% or you reach the halfway point in your amortization schedule.

If your LTV ratio is too high, taking out a mortgage loan will also be more expensive. By making a small down payment, you’ll need a bigger loan. In addition to paying PMI, you’ll probably pay more interest.

A high LTV ratio can prevent a homeowner for qualifying for a refinance loan. Unless you can qualify for a special program (like HARP or the FHA Streamline refinance program), you’ll likely need to work on building equity in your home.

The loan-to-value ratio is just one factor that mortgage lenders consider when deciding whether to approve a borrower for a mortgage or a refinance loan. There are other factors that lenders take into account, such as credit scores. But if you want a low mortgage rate (and you want to avoid paying PMI), it’s best to make a sizable down payment and aim for a low loan-to-value ratio.

As a rule, you can't borrow more than 4.5 times your total annual income. So if you earn £60,000 a year, the most you'll be able to borrow is £270,000. Limiting how much you can borrow keeps your repayments affordable, which lowers your lender's risk.

Other factors that can affect your mortgage deal include: