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LTV
Ratio
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The loan-to-value (LTV)
ratio is probably the most important of the 3 underwriting ratios. The loan-to-value ratio is defined as: First let's look at the numerator. If the
borrower is only applying for a first mortgage, and there will be no other
loans on the property, then the beginning balance of the new loan
requested should be inserted in the numerator. However, if the borrower is applying for a
second mortgage, then the "underwriter" (the person who
determines whether or not the loan qualifies) should insert the sum of the
first and second mortgages in the numerator. Similiarly, if the borrower
is applying for a third mortgage, then the underwriter should insert the
sum of the first, second and third mortgages into the numerator. When the borrower is applying for a second
or third mortgage, the loan-to-value ratio is often known as the combined
loan-to-value ratio (CLTV ratio). Now let's look at the denominator.
Generally the fair market value of a property is determined by an
appraisal. There is one important exception, however. When the proceeds of
a mortgage loan are used to buy the same property that is securing the
loan, then that mortgage is known as a "purchase money loan." If
the appraisal comes in lower than the purchase price in a "purchase
money" transaction, then the lender will use the LOWER of the
purchase price or appraisal. Apply
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