What is the Meaning of “Loan to Value Ratio”?

Loan to value ratio is a standard way to express the relationship between a loaned sum of money and the value of the property obtained for that loan. Loan to value is most often used in reference to home mortgages. Loan to value figures play an important role in the finances of real estate because the value as represented in a ratio goes a long way toward determining whether the loan will be granted and if so, what type of terms will be offered. Because loaning is about evaluating risk, a loan to value ratio that is less of a risk to a lender is a loan or mortgage that is more likely to be approved.

You can find the loan to value ratio yourself by consulting a few official statements that give you a clear and accurate view of the finances involved. Your mortgage statement is one key document to use in figuring the loan to value of your home. On the mortgage statement you will find the up to date balance that remains on your mortgage. The remaining balance is the numeric representation of what it would take for you to own your home free and clear.

The next document that allows you to calculate the loan to value ratio in exact terms is your most recent tax assessment. The tax assessment represents the appraisal of your home. The appraisal works to determine the value of your home or what the home is currently worth. Your property taxes are based upon the value of your home and so the state appraises your home to determine the amount of taxes you will be required to pay. As such, the assessment statement represents and unbiased evaluation of your home’s worth.

Your loan to value ratio must also take into consideration any other liens on your property. For example; if you have a home worth $100,000 according to your state tax assessment and a mortgage balance of $50,000 as well as a $25,000 home equity loan balance; you have $75,000 owing on a home worth $100,000. In this case, your loan to value ratio is 75%.

Review any agreements you have related to the equity in your home. Any lien against your home must be added to the value of your remaining mortgage balance to get an accurate loan to value ratio.

Leave a Reply

Your email address will not be published.