Loan to Value is the affiliation between the amount of cash borrowed and the appraised value of the property. The formula for LTV is the mortgage balance divided by the estimated value of the home. Loan to Value continues to play an integral part of home mortgage loan guidelines. Both Fannie Mae and Freddie Mac use Loan to Value as the driving force with credit scores for determining conforming loan qualifications.
Loan To Value (LTV)
|Mortgage Balance Divided by Home Value = Loan to Value (LTV)
|ie. $150,000 Mortgage / $175,000 Home Value = 85.71% Loan to Value
Loan to Value is considered to be a mortgage term referring mostly to a single mortgage. When a borrower has a first and a second mortgage, the term used most frequently is “Combined Loan To Value”, also called CLTV. The formula for CLTV is the balance of the 1st mortgage plus the balance of the second mortgage, and that sum of mortgages is divided by the estimated value of the home.
Combined Loan To Value (CLTV)
|1st and 2nd Mortgage Balance and Sum is Divided by Home Value = Combined Loan to Value (CLTV)
|ie. $150,000 1st Mortgage + $50,000 2nd Mortgage = $200,000 / $175,000 Home Value = 114.29% Combined Loan to Value