Low to moderate income home shoppers represent a large group of 21st century first time buyers. Regrettably, they’re a group that was also sidelined in the recent housing recovery due to overly strict loan requirements and limited low down payment mortgage options offered. Read More
The Federal Housing Finance Agency (FHFA) recently announced that 2020 conventional loan limits would be raised to $510,400 for single-family homes. This increase in conforming loan limits has gone up almost $100,000 since 2016. These limits may be exceeded if the property is located in a high-cost area. Read More
The Debt-to-Income Ratio, also known as “DTI Ratio”, are simply a couple of percentage representing applicant debt compared to their total income. Lenders use mortgage debt-to-income ratio percentages to evaluate a borrowers ability to repay them as agreed. Maximum debt-to-income ratios may vary based upon the mortgage program and the lender. Read More
The Loan-to-Value Ratio (LTV) is a percentage used to describe a loan amount compared to a property valuation. Lenders often use LTV Ratios to determine evaluate mortgage risk, determine applicant approval, and if they’ll be required to carry mortgage insurance. In general, higher LTV ratios represent increased risk to the lender. Therefore, high LTV mortgage loans are usually required to carry mortgage insurance. The LTV ratio is contingent on a property’s appraised value, as determined by the lender and mortgage program.
Loan-to-Value is calculated several ways, depending on the purpose of the mortgage. For a home purchase loan, the LTV is calculated based upon the sales price. For a refinance, the LTV is calculated based upon the appraised value of the home. The LTV ratio for either method is determined by dividing the loan amount by either the purchase price or total appraised value of the subject property.
Example: Let’s assume you want to purchase a home that has an appraised value of $100,000. If you have $20,000 available for a down payment, then you’ll need to borrow another $80,000, or 80% of the purchase price. Therefore, your ‘Loan-to-Value’ is 80%.
Maximum Conventional LTV Ratios vary based upon several factors including mortgage type, loan purpose and the number of units in a property. Loan-to-value determines mortgage approval decisions within conventional loan requirements, and also if a borrower is required to carry Private Mortgage Insurance (PMI).
Conventional loans had maximum LTV limits of 80% historically, but that’s all changed. These days, applicants can get conventional loans with LTV ratios of up to 97%.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 97% LTV | 90% LTV |
| 2 Units Primary | 85% LTV | 75% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 90% LTV | 80% LTV |
| 1 Unit Investment | 85% LTV | 75% LTV |
| 2 Units Investment | 75% LTV | 65% LTV |
| 3 Units Investment | 75% LTV | 65% LTV |
| 4 Units Investment | 75% LTV | 65% LTV |
Rate-Term Refinance is considered any refinance where the borrower doesn’t get cash back. These no-cash-out refinance options are used to lower a homeowner’s payments and interest rate. Rate-term refinance loans usually allow higher loan-to-values than for borrowers trying to take cash out.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 97% LTV | 90% LTV |
| 2 Units Primary | 85% LTV | 75% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 90% LTV | 80% LTV |
| 1 Unit Investment | 75% LTV | 65% LTV |
| 2 Units Investment | 75% LTV | 65% LTV |
| 3 Units Investment | 75% LTV | 65% LTV |
| 4 Units Investment | 75% LTV | 65% LTV |
Cash-Out Refinance loans are used when a borrower has equity in a property they want to turn into liquid cash. Because these loans often increase lender risk, they generally employ stricter LTV ratio requirements than no-cash-out refinance loans.
| Residence Usage | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| 1 Unit Primary | 80% LTV | 75% LTV |
| 2 Units Primary | 75% LTV | 65% LTV |
| 3 Units Primary | 75% LTV | 65% LTV |
| 4 Units Primary | 75% LTV | 65% LTV |
| 1 Unit Second Home | 75% LTV | 65% LTV |
| 1 Unit Investment | 75% LTV | 65% LTV |
| 2 Units Investment | 70% LTV | 60% LTV |
| 3 Units Investment | 70% LTV | 60% LTV |
| 4 Units Investment | 70% LTV | 60% LTV |
FHA loans allow higher LTV ratios than most mortgage programs. Therefore, they’re considered a low down payment mortgage. Loan-to-value ratios also affect how FHA loans are priced to the consumer, and if they’re required to carry FHA mortgage insurance.
| Credit Score | Purchase Mortgage | Refinance Mortgage |
|---|---|---|
| 580+ FICO Score | 96.5% LTV | 85% LTV |
| Below 580 FICO Score | 90% LTV | 85% LTV |
While there’s no set maximum LTV for VA loans, it’s generally 100 percent. VA loan-to-value may exceed 100 percent if the veteran chooses to finance the funding fee, discount points or energy efficient improvements.
| Purchase Mortgage | Refinance Mortgage | |
|---|---|---|
| All Credit Scores | 100% LTV + Points, Fees | 100% LTV + Points, Fees |
USDA loans are a zero down payment mortgage program, which means they’re offered with LTV’s of 100%. Technically, USDA loans are offered with a maximum loan-to-value of 102% because of the 2% “Guarantee Fee” may be rolled into the mortgage amount and paid over the duration of the loan.
| Purchase Mortgage | Streamline Refinance | |
|---|---|---|
| All Credit Scores | 102% LTV | 102% LTV |
Conventional loans are considered the ‘garden variety’ of mortgage programs. And while the term ‘conventional loan’ is defined as any mortgage that isn’t guaranteed or insured by a government agency, conventional loans can be either “conforming” or “non-conforming”. Conforming loans are conventional programs that meet or ‘conform’ to guidelines set forth by the Federal Housing Finance Agency (FHFA), as well as the funding criteria for either Fannie Mae and Freddie Mac.
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