What is a “Loan to Value” (LTV) ratio?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment.
The Loan to Value (LTV) ratio is the proportion of money you need to borrow compared to the value of the property you are borrowing on. The usual LTV ratio for a standard mortgage is 75%. This means that if your property costs £100,000, you will be able to get a mortgage of £75,000. However you can also get mortgages with much higher LTV ratios, even 100% or more – it just means that you will have to pay a higher rate of interest and availability will depend upon your credit history. Conversely, if the mortgage provider considers you to be an impaired/poor risk, you will only qualify for a lower LTV – this means that you will have to provide a bigger deposit, or you will have to pay significantly higher interest rates. To help out first time buyers and especially young professionals, 100% mortgages are quite common. Young professional with particularly good prospects may even qualify for a mortgage of up to 120% LTV.
