Here is a simple explanation if you plan on buying any real estate
soon whether it be Santa Maria real estate or not as to one of the most important lending guidelines that lenders use to qualify you for your new mortgage home loan. One of the factors lenders consider before they approve a mortgage is the loan-to-value ratio (LTV). The LTV is the loan amount expressed as a percent of either the purchase price or the appraised value of the property. So, if you make a 20 percent cash down payment on a property you’re buying, the LTV is 80 percent. Or, if you’re buying a property for $250,000 and the mortgage amount is $200,000, the LTV is 80 percent (the $200,000 loan amount divided by the $250,000 purchase price).
A mortgage with a high LTV is one where the mortgage amount is high relative to the borrower’s cash down payment or to the equity in the property. For example, if the LTV is 95 percent, the mortgage amount is equal to 95 percent of the purchase price and the buyer’s cash down payment is equal to only 5 percent of the price. From a lender’s perspective, a high LTV mortgage is more risky than one where the LTV is low. When borrowers make a large cash down payment, or have a large equity in a property, they are less likely to default on the mortgage. Borrowers with less equity in a property have less to lose which puts lenders more at risk.
Lenders often require borrowers of high LTV loans to pay mortgage insurance to protect the lender from a buyer default. This increases the cost of the mortgage. High LTV loans can also carry a higher interest rate and they are often more difficult to qualify for. Some lenders require borrowers to have a larger monthly income to qualify for a 95 percent LTV mortgage than is required of borrowers with a 20 percent cash down payment, even though the loan amount is the same. But now a days everyone is pretty much getting an FHA when buying a Santa Maria home for sale and when you only put down 3.5% your LTV is high which is why you have to pay the PMI on a loan which is really insurance for the lender in case you default on your loan.
Sellers also have reason to be concerned about the buyer’s LTV. If the buyer’s LTV is high and the appraised value of the home comes in lower than the purchase price, the transaction is put in jeopardy. Part of the mortgage approval process involves an appraiser’s report of the current market value of the property. If the appraised value comes in lower than the purchase price, the lender will base the LTV on the lower of the two amounts.
Let’s say you’re putting 5 percent down on a $250,000 property. You need a mortgage for $237,500. The appraisal comes in at $245,000 and the lender is only willing to lend 95 percent of the appraised value, or $232,750–$4,750 less than you need to close. You may have to withdraw from the transaction unless you have an additional $4,750 cash to apply towards the purchase.
FIRST-TIME TIP: Lenders of high LTV mortgages often require a second, review appraisal before they’ll approve the loan. Sometimes this results in a lowering of the appraised value. If you find yourself in a situation where the appraisal comes in below what you need, you may want to move the loan to another lender who will be more lenient on the appraisal. One of the benefits of working with a mortgage broker is that he or she can move the loan from one lender to another quickly.
High LTV buyers are at a disadvantage when they are competing with other buyers. If given the choice, most sellers would prefer to accept an offer from a buyer with a large cash down payment because there’s less risk of the deal falling apart. This is one of the big things when trying to buy one of the Santa Maria homes for sale that are at a really good price when there is competition for that house if you only have the minimum to put down on an FHA and someone can put down more the seller is going to like the guy with the bigger down payment because its more solid.
THE CLOSING: To be more competitive, you may need to look at homes in a lower price range or accumulate more cash, or both.
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If you have any questions about buying a Santa Maria home for sale in the Santa Maria Real Estate market or any properties on the Central Coastand need to get a loan in Santa Maria, CA or any where in the state of so I California not just on the Central Coast, so I can do California home loans, and first time home buyer loans, as well as refinance home loans and just plain simple mortgage loans. So please contact me by sending me an email at: GenePerez@GMSLoans.net
I do also service all the nearby communities and other markets such as the Santa Ynez real estate market, Nipomo Real estate market, Arroyo Grande real estate market, Grover Beach Real Estate Market, and all other surrounding areas regarding the homes on the Central Coast.
my goal is to provide you with resources you need. I can also help in getting the financing for your home. If you have any suggestions or questions in how I can provide more or better
information please let me know. I have been helping my clients for the last 15 years on the Central Coast, Gene Perez – 805-448-7101 , DRE 01321588/NMLS 289430
Important Disclaimer: Questions and answers provided on this website and by Gene Perez is to be considered general information, and is not intended to substitute for informed professional financial, tax, legal, investment, accounting, or other professional advice.
Gene Perez is Licensed Real Estate Broker and a mortgage broker for Greater Mortgage Solutions.
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Tags: buying a home, loat to value, refinancing
