Jan
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Loan-to-Value ratio (LTV)
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The relationship between the amount of a mortgage and the total value of the property.
Sometimes you may get a better rate on your 1st mortgage when your first mortgage has a LTV of 70% or 75%.
Also the lower the loan to value the documentation requirement maybe reduced. Is some cases of 65% or less no documentation is required with no increase in interest rate.
Still don’t understand what an LTV is? I can understand it could be confusing but I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.
Besides credit history, income, and assets, Loan-to-Value Ratio is an important aspect mortgage banks look at. It shows the lenders how much stakes the homeowner has put into the property. The lower the LTV ratio, the higher the stake the homeowner has in the home and less likely to default on the loan, which means less risk for the bank in granting the loan.
The lower your LTV, the lower your interest rate choices when refinancing.
In a purchase transaction, the more money you put as a down payment, the lower your LTV will be. A lower LTV will qualify you for a lower interest rate than a higher LTV.
Many times your fico score if too low, will limit you to a maximum LTV available during the qualification process.
Interest paid on any part of a mortgage exceeding the home’s value cannot be deducted in most cases on your tax returns
There are now programs that will give a homeowner 103% - 107% LTV, allowing the loan to pay for the closing costs of the real estate transaction. These types of loans do have higher interest rates. The higher rates are worth paying in some cases rather than throwing your money away on rent each and every month.
Loan-to-value ratio is derived from dividing the loan amount by the property value. Property value is determined by the purchase price or the appraisal value of the property, whichever is less. Many lenders offer loan programs of up to 100% LTV to borrowers with positive compensating factors such as good credit history and low Debt-to-Income Ratios. In addition, a knowledgeable loan officer can often structure loans to accomplish 100% LTV or even 103% LTV mortgages for qualifying homebuyers.
You can even get loans for as much as 125% LTV.
Jan
1
Cash-Out Refinance
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Editors Note: Due to the mortgage and credit crunch, Cash-Out Refinances may be harder to obtain. If you’re in need of a Denver Refinance contact us to discuss your mortgage options.
With a Cash out-Refinance the money you get at closing can be used for many purposes such as future investments, College, or debt consolidation. Money can be used to pay off current monthly debt which could lower your personal Debt to Income ratio. Consult a Mortgage Professional in regards to how much you should extract from the equity built into your home.
You can get cash out through a first mortgage, a second mortgage or a home equity line of credit (helot). Some lenders will require that you stay within certain loan to value (LTV guidelines) for cash out. Conforming limits are 90% LTV and FHA cash out is limited to 85% LTV. Many subprime lenders will go to 100% cash out with good credit.
Whenever you take a decent amount of cash out from your home, your LTV (loan to value ratio) will probably exceed 80%. To avoid paying mortgage insurance on these loans, many borrowers split the amount borrowed into two loans, a first and a second. Typically, the first mortgage has a LTV of 80%, but there are loan programs where having the first mortgage at 70% LTV offers more favorable terms to the borrower. The lower the LTV ratio, the less risk the lender will have in offering you a loan.
FHA update on October 31, 2005 allowing for a cash out refinance to go as high as 95% LTV. Previously the guidelines only allowed for a maximum of 85% LTV. These changes will allow many borrowers to take advantage of the equity in there homes and still obtain low rate financing.
Taking cash out on a home refinance is one of the many factors a lender takes into account when evaluating the risk of the loan. In certain situations, taking cash out may cause the lender to perceive the loan to be of higher risk. This could result in a slightly higher interest rate or additional restrictions on qualifying for the loan.
Since payment on cash out refinances can be spread across over up to 40 years, it is often advisable to use the proceeds for investing in something enduring. Using cash out from home equity for Value adding home improvements or for financing a new business are excellent options whose benefits you will continue to reap long after the last payment is made.
Besides setting the maximum LTV limit with Cash-Out Refinances, some prime lenders also limit the maximum cash-out dollar amounts.
Some non-conforming lenders will allow cash-out up to 125% of the value of your home.
Cash out Refinances can help many people better their financial situations by improving their monthly cash flow. However, many of these borrowers after paying off high interest rate debts often find themselves in the same situation down the road because of a failure to control their use of credit. These people wind up being in a worse situation because now they have no equity in their home plus high interest rate debts to pay.
If you’re looking to take out unlimited cash out when refinancing consider a rate and term refinance of your first mortgage and a home equity loan second mortgage option. Taking cash out proceeds from your second mortgage allows you to get a better rate on your first mortgage.
Jan
1
125% Financing
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A 125% financing allows you to purchase a home with no money down, and allows you to receive cash, up to 25% over the purchase price of the home. The extra cash received at closing can be used for home repairs, debt consolidation, or anything else that you may wish.
These are a good idea if the 25% overage is going to be used to increase the value in your home!
You may not be able to deduct the interest paid on the portion of your loan which is greater than the value of your home. Consult your tax specialist for more information.
It is more common to have a second mortgage or Home Equity Line of Credit (HELOC) that is equal to 125% of your home value.
If you are in a hot market were your home is appreciating at a rapid pace then this loan would not put you in as much risk than if you were in an area or economy where the appreciation was moving slowly.
You can expect to receive a higher interest rate for these loans, because of the high risk to the lender.
125% LTV loans are only for borrowers who believe that their home will be worth at least 25% more when it comes time to sell it, unless they have other means to cover the difference.
When you’re rehabbing or remodeling your existing home, the 125% loan makes sense because you’re tapping the future equity of your home.
Not many investors offer this program anymore. It was a popular loan in the late 90’s until about 3 years ago. However, it is still available with select lenders. You need to have excellent credit to qualify for this program since the risk to the lender is high.