understanding ltv / cltv
TRANSCRIPT
““Understanding Loan-To-Value Understanding Loan-To-Value (LTV)/ Combined-Loan-To-(LTV)/ Combined-Loan-To-
Value (CLTV)”Value (CLTV)”
October 19, 2010
Patrick BrockMortgage Loan Officer
Bank of America Home Loans626-253-3944 (cell)
Patrick BrockMortgage Loan Officer
Bank of America Home Loans626-253-3944 (cell)
What Does Loan-To-Value What Does Loan-To-Value Ratio/LTV Ratio Mean?Ratio/LTV Ratio Mean?
• The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property.
Calculating LTVCalculating LTV
• Example:If a buyer wants a loan for $261,000 to purchase a home worth $300,000, the LTV ratio is $261,000/$300,000 or 87% LTV.
What Does Combined-Loan-To-What Does Combined-Loan-To-Value Ratio/CLTV Ratio Mean?Value Ratio/CLTV Ratio Mean?
• The term "Combined Loan To Value" adds additional specificity to the basic Loan-To-Value. When "Combined" is added, it indicates that additional loans on the property have been considered in the calculation of the percentage ratio.
Calculating CLTVCalculating CLTV• Example:
A property valued at $100,000 with a single mortgage of $50,000 has an LTV of 50%. A similar property with a value of $100,000 with a first mortgage of $50,000 and a second mortgage of $25,000 has an aggregate (or combined) mortgage balance of $75,000. The CLTV is 75%.
LTV Risk AssessmentLTV Risk Assessment
• Typically, transactions with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the buyer more to borrow or he or she will need to purchase mortgage insurance.
Determining LTV/CLTV RatiosDetermining LTV/CLTV Ratios• Loan-to-Value (LTV) and Combined-Loan-to-Value (CLTV) calculations must be
taken out to two decimal places and are always rounded upward to the next whole number, (e.g. 80.01% becomes 81%).
• If a home equity line of credit (HELOC) is in either first or second lien position, the credit limit of the line of credit must be used in calculating the LTV or CLTV. The first lien is used to determine the LTV, and all liens must be considered when calculating the CLTV.
• When documenting home improvements, the appraisal of the property should reflect and comment on the improvements made and be based on the as-completed value of the property.
• If the property has been owned for less than 12 months and the appraisal shows a substantial increase in value from the original purchase price, the underwriter will verify that the increase in value is valid.
Thanks For The Opportunity!Thanks For The Opportunity!
Please let me know how I can help.Please let me know how I can help.