| HIGH LOAN-TO-VALUE LOANS |
What Is A High Loan-To-Value or LTV Loan |
A high loan to value, also called a high LTV loan is a loan where the amount of the mortgage is hign in comparison to the value of the loan. Generally 80% loan to value is considered normal. For example, a home with a value of $100,000 would be at an LTV of 80% if the loan amount were $80,000 and an LTV of 90% if the loan were $90,000. In many cases it is difficult to obtain financing with zero money down. The lender will usually look for very high credit scores and a very thorough payment history. In some cases it may be easier than one would think. Twenty years ago it was always a rule of thumb that one needed to put down at least 20% in order to purchase a home. Last year over 40% of home purchases were made at 100% loan to value. One reason that people avoid high loan-to-value loans is the fact that a lender will require mortgage insurance if the loan-to-value ratio exceeds 80%. Loan to value is the ratio of the loan in comparison to the value of the home. For example: Home Value = $100,000 Loan Amount = $80,000 Loan-to-Value ratio = 80% In this example the loan to value ratio is 80% because the loan amount is 80% of the value of the home. Mortgage insurance is a policy that protects the lender in the case of default by the borrower.
One way around mortgage insurance is to take out what is called a piggy back loan. A piggy back loan is taking out a first mortgage for 80% of the value, in the case of the example $80,000 and a second mortgage for the remaining 20% which would equal $20,000. You are now in a situation where you have a 100% financing situation but are not open to mortgage insurance. Generally the interest rate on a second mortgage is higher than the interest rate on the first mortgage, but the difference is less expensive than what the mortgage insurance would cost. Another way to finance a home with very little money down is to work the closing costs into the scenario. A lender will generally allow a seller to pay a certain amount of the closing costs. This allows for a higher loan to value ratio. We have experience with high loan to value loans. It is always good to have a mortgage broker working with you that will help to make the buying process as smooth as possible. We look forward to serving you. |
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