What is a Combined Loan to Ratio Value?
The combined loan to ratio value is a formula that is used by lenders to determine the default risk when more than one loan is attached to an asset. The most common application of the combined loan to ratio value is used with real estate deals. Often, the ratio value is calculated when homeowners wish to take out a second mortgage, or when it is necessary for some reason to obtain two loans to cover the initial purchase of a home. The basic formula for calculating a combined loan to ratio value is simple. Potential lenders will verify the value of each loan and add the totals together. The combined total provides the lender with the amount of indebtedness that the homeowner will carry in the event that the second loan is granted. This grand total of debt is compared to the total value of the property that is serving as the collateral on both loans. Ideally, the value of the property will exceed the total indebtedness. Many lenders also prefer to have a wide combined loan to ratio value
