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Loan-to-Value Ratios Explained

If you’re applying for a mortgage or hoping to refinance your existing loan, you’re probably going to hear the term loan-to-value ratio, also known as your LTV.

This is the amount you hope to borrow compared to the value of the property.

For example, say you make a 10% down payment on a home and then take out a mortgage for the other 90%. You would have a 90% loan-to-value ratio.

“Lenders really care about loan-to-value [ratios] because that shows…[your] being able to afford the particular new debt that you’re looking at taking on in a mortgage,” said Ken Smith, a New American Funding sales manager based in Evans, Ga.

Lenders generally prefer lower loan-to-value ratios as this shows you’re making a higher down payment. Those with lower LTVs may even be able to snag lower mortgage rates, which can save you money on your mortgage payments.

Ken Smith NMLS# 1693047

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Author

Editorial Director, New American Funding

Clare Trapasso is the editorial director at New American Funding. She was previously the Executive News Editor for Realtor.com and a reporter for a Financial Times publication, the New York Daily News, and the Associated Press.