As a real estate investor, you need to know loan-to-value ratios. Loan-to-value ratios are important for investor real estate loans in Texas and other states. LTVs determine the loan amount by comparing the value of the property involved. Here is a guide that will help you understand the basics.
What Is LTV?
LTVs are an important measure for investors to use when processing real estate loans and refinance. This figure can be used as a benchmark for how likely payments will be made because it defines how much equity you will get from the involved property. Essentially, equity is the amount you would get if you sold your property minus the amount you need to spend repaying your loan. A high loan-to-value ratio is an excellent investor loan source that can be used to define the specifications of real estate loans, mortgages, or refinancing options.
Calculating Loan-to-Value Ratios
The LTV real estate calculator is a tool that helps you understand the formula used to figure out the loan-to-value ratio of any residential property. The formula is relatively straightforward: Divide the loan amount by the purchase price or appraised value of a home, then convert this number into a percentage. This lets you see how much money is tied up in purchasing a particular property and how much money is available for other expenses, like ongoing maintenance.
What Makes a Good Loan-to-Value Ratio?
The LTV ratio is calculated based on the home price and the amount of loans lent towards the property compared to its value in your local market. Generally, the higher the loan-to-value ratio or LTV variety, the more money you will pay on interest rates, insurance, and other fees. It also means that you have less equity on the property. On the other hand, a lower LTV can help you get a better rate and add security if something happens to your investment.
Conforming Loan-to-Value Ratios
Conforming loan-to-value ratios is a term that refers to the amount of money borrowed for a mortgage on an owner-occupied residence. This amount is based on the property’s value and can range from 80% to 95%. The number is lower for non-owner-occupied properties, such as second homes and commercial properties with more than four units.
Nonconforming Loan-to-Value Ratios
Nonconforming loan-to-value ratios are used by private lenders that manage real estate loans online. These loans don’t conform to government guidelines, and the investor’s credit score is important for the lender to be willing to work with you on a high-risk loan. This higher interest rate means more money for you to invest or an excellent opportunity for you to buy a house that is priced lower than it would be if the LTV were within government limits.
