Calculate Your Mortgage Loan to Value
A myriad of financial risk indicators are taken into consideration when your lender issues the rates and terms on your loan approval. This is because your lender must evaluate you as a borrower and how much risk you present regarding the possibility of a default.
One of the indicators measured is your loan-to-value ratio or LTV. If your lender assesses your LTV at a higher percentage, the risk associated with issuing your loan increases, resulting in increased rates. Conversely, if you score a lower LTV ratio, the risk associated with issuing your loan decreases in tandem with your interest rate. For eligible veterans and military service members
How Does Your Mortgage Loan to Value Ratio Affect your VA Loan Approval and Interest Rate?
Your LTV is often used by your lender to determine whether a lender will extend you credit on a loan to purchase your home. On a conventional loan, to secure a lower interest rate on a loan, your lender will look for an LTV ratio set at 80% or below. However, because the VA backs a portion of the loan, the VA’s LTV ratio is set at 100%.
It is important to note when refinancing on a VA loan, as of 2019, the VA will no longer guarantee refinancing loans when the LTV ratio exceeds 100 percent. Additionally, the VA funding fee must be included in the total calculated amount and cannot cause the loan to exceed the officially appraised value of the property.
On a conventional loan, a borrower with a high LTV ratio presents a high risk to the lender, which can sometimes mean having to purchase private mortgage insurance or PMI. Fortunately for eligible military service members, the VA’s lending program offsets some of the usual risk assumed when issuing a loan. This is because a portion of your loan has guaranteed federal backing. However, you will still want to secure the best LTV ratio possible as this can affect your loan’s interest rate.
Higher interest rates can cost you thousands of dollars more to be paid over the life of your loan. That is why Hero Loan is here to provide you with a loan to value calculator as a financial resource so you can make informed decisions that will put you in the best financial position possible as a homebuyer.
How Do I Calculate my LTV on a VA Loan?
To calculate your LTV on your VA loan, you need to divide the total loan amount (including the VA funding fee, if any) by the appraised property value. Use the most accurate information available to you for the following inputs to get a more precise estimate:
- Official Appraised Property Value. You will need to have an appraisal conducted by a professional appraiser to determine an estimate of the value of the property you are interested in purchasing. The higher the appraisal comes in the lower the LTV will be. Be mindful of Minimum Property Requirements (MPRs) set by the VA as this will significantly impact the appraised value.
- Total Loan Amount. This input is straightforward: it is the total loan amount you are seeking to borrow to purchase the property. The LTV ratio comes into play because it is the percentage of value for which you want to obtain financing. For example if you want a loan of $270,000 and the value of a property is $300,000, the LTV ratio is calculated at 90% ($270,000/$300,000 = .9 or 90%). Through the VA loan program, you would be able to borrow 100% of the LTV and receive the full amount at $300,000. VA loan limits are generous but vary by state, county, and city location. Do some research to ensure you’ll be eligible to receive the full loan amount you need to purchase your home.
- VA Funding Fee. The VA funding fee is a one-time fee that allows for the continuance of the VA loan program. It allows for future eligible military service members to benefit from this entitlement program’s advantageous rates and terms. For first-time usage of a VA loan, the funding fee is calculated at 2.3% of the loan. This is your steady source of income each month before taxes. For postliminary usage, like on a second purchase or investment property, the funding fee is calculated at 3.6% of the loan amount. You can reduce the amount by putting at least 5% down at closing.
Something to be aware of when using an LTV calculator is that it does not necessarily provide a complete picture of the information your lender will assess. Your LTV will show you your primary mortgage information, but your lender will also evaluate other financial obligations that present risks, such as a second mortgage or home equity loan. To get a more inclusive measurement of your ability to repay your loan, a combined LTV calculator (CLTV) should be used.
How Can Hero Home Loan Help?
At Hero Loan, it is our mission to help our veteran and active-duty military service members secure their dream home with the best deal possible on a loan. Luckily, because of the VA’s federally backed guarantee, we can easily issue loans at a 100% LTV ratio. Our team of friendly lending experts, who come from the same communities we serve, can offer a personalized, relatable customer service experience.
We recognize that our veterans, active duty service members, and their families represent an invaluable part of the community. We are proud to give back to our military service community by supporting local veteran-owned businesses and events. We are proud to sponsor the efforts of the Fisher House project, which helps to provide complimentary accommodation to the families of veterans undergoing medical procedures.
Give us a call today at 800-991-6494 to speak with a representative, who can help you close on the loan to get you into your dream home in as little as two weeks. Our in-house underwriting process not only makes us efficient, but able to relieve the majority of stressful paperwork that can delay the homeownership process. We are also available to reach through our online application to discuss any other questions or concerns you may have about how your LTV ratio will affect your financing and refinancing loan options.