Low Mortgage Rates for Smart Loan Shoppers
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Low Mortgage Rates for Smart Loan Shoppers |
LTV: Understanding Home Equity Loans and Property Valueby Karen LawsonCMR Columnist You've put a lot of work into your home, and property values have been increasing. But now you want to pay off high-interest debt, do some remodeling, and pay for college. It's time to think about getting a home equity loan or cash-out mortgage refinance. Will you qualify for the loan you need? Loan to Value, or LTV: How It Impacts Your Home Equity LoanLoan to value, or LTV, is expressed as a ratio of your home's value to the unpaid balances of mortgage loans against your property. Lenders consider the present loan to value ratio of your current mortgage balance as compared to your home's present value.Here is an example: Your present mortgage balance is $200,000. Your home is worth $350,000. Your LTV is $200,000 divided by $350,000, or 57%. You want to borrow $80,000 to take care of the bills, home remodeling, and college tuition. Your new home equity loan would increase your overall mortgage balance to $280,000. Your new LTV will be 80%. In this case, you would likely qualify for a mortgage refinance or home equity loan based on the low LTV ratio. Other factors such as your credit rating, income and assets, and market trends in your area are also considered as part of the application process. How is Property Value Determined?Who determines how much your home is worth? Mortgage lenders depend on professional real estate appraisals made by trained appraisers. Lenders use standardized appraisal reports that require comprehensive evaluation of your property and of comparable properties in your area.The appraiser will also consider information of public record including recent sales, development proposals, zoning, and any environmental issues of record. Appraisers assess the structural soundness and curb appeal of your home. Your home's appraised value is used to establish the LTV and the amount of equity. The lower your LTV, the more home equity you have. The more equity you have, the more options you will have for a mortgage refinance or home equity loan. About the Author Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She earned an MA degree in English from the University of Nevada, Reno. © 2006 CMR. All rights reserved. |