One of the very important calculations in a loan is the loan-to-value ratio or what is called as the LTV. This calculation is used so that the limits on the housing loan and ratio of debt are determined. Where it falls will be identified during the loan approval. This is also used in determining the amount and fees that you as the borrower will pay for the loan. Moreover, the loan-to-value ratio identifies whether a PMI or private mortgage insurance needs to be paid and if the loan will be impounded or require an escrow account. The steps below will help you calculate the loan-to value ratio.
Understand the basics. There are two instances where a loan-to-value ratio is useful for you. The first is if you are getting a loan (in the process of it) and the second is if you already have an existing loan. Loan-to-value ratio requires computation. This is why you need to have details with you at hand.
Getting a Loan
Get the value of the property. The first step in computing for an LTV is to get the selling price or the value of the property.
Subtract your down payment. Once you have the property value, the next thing that you need to do is to subtract your down payment from the acquired value. The difference that you will arrive at here is your loan amount.
Get the LTV. The loan-to-value ratio is obtained by dividing the loan amount that you have identified with the value of the property. This will give you a decimal, which you need to convert to a percentage. The LTV is the figure that you relay to lenders when you are in search for a property to acquire for mortgage.
Appraisal. The first thing that needs to be done is to have your property appraised. This is the best and most accurate way in order for you to get the real value of your home or property. If you however are just after information and not really planning to refinance the home, then you do not need to spend money. A good estimate can be arrived at by going through comparison of properties that are similar to your home. You can take a good scan in the neighborhood for homes that have been sold. This can be the figure to use in your computation.
Check your balance. Identify how much you still owe. A good reference here is your loan statement, or you may call the bank’s customer service number to get the info.
Identify the LTV. Simply divide your existing loan amount to the appraised amount of the property.
The Loan-to-Value ratio or the LTV is very simple to compute. The only thing that you need to make sure of is that the figures you are working on are correct. With a good loan to value rating, you will be able to secure better rates from your lenders. By being able to compute for the LTV value, you will be able to determine your chances of securing the loan.