Lenders will provide mortgages based on many factors, one being the loan to value ratio of the property. The type of property, whether owner occupied or investment, will usually determine different maximum allowable LTV ratios.
This ratio is expressed as a percentage and is derived by dividing the mortage amount by the lesser of the selling price or appraised value.
Difficulty: Easy
Time Required: 5 minutes
Here's How:
- Using the selling price or appraised value of the property, determine the available or desired down payment and the desired mortgage amount that would be needed.
Home selling for $300,000, and the buyers have $40,000 available for a down payment.
$300,000 - $40,000 = $260,000 desired mortgage amount.
- Divide the mortgage amount by the selling price and convert the result to a percentage.
$260,000 / $300,000 = 0.87 or 87% which is the LTV ratio.
Tips:
- Though you may be buying a property below the appraised value, and considering it a bargain, the lender will use the lower purchase price in this calculation.
What You Need:
- Calculator
