Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

So, Do I Have To Sell?

Yes. No. Maybe. It depends.

Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.

If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

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As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please contact us at anytime so we can review your specific situation and suggest the proper action plan.

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8 Questions Your Lender Should Answer About Mortgage Rates

Simply checking online for today’s posted rate may not lead to your expected outcome due to the many factors that can cause each individual rate and closing cost scenario to fluctuate.

We can preach communication, service and education all day long, but it’s our ultimate goal to earn your trust so that you can be confident in our ability to successfully lead you through this complex mortgage process.

Since mortgage rates can change several times a day, the following questions will help determine whether or not your lender truly knows what to look for so that they can provide you with a competitive rate once you’re in a position of locking in your loan:

Who determines mortgage rates, and what are they tied to?

Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds. The media often implies mortgage rates are based off the 10-year Treasury Note, which is incorrect.

While the 10-year Treasury Note has been known to trend in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

How often do mortgage rates change?

Mortgage rates may change throughout the day, however they only change on days when the Bond markets are trading securities since mortgage rates are based on Mortgage Bond prices.

Think of a Mortgage Bond’s sales price similar to that of a Stock that trades up and down during the course of a day.

For example – let’s assume the FNMA 30-Year 4.50% coupon is selling for $100.50. The price is 50 basis points lower from the previous day’s closing price of $101.00.

In simple terms, the borrower would have to pay an additional .50% of their loan amount to have the same rate today that they could have locked in the previous day.

What causes mortgage rates to change?

Mortgage Bonds are largely affected by various market forces that influence the changing demand for bonds within the market.  Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and the overall movement of money in and out of the markets.

Like stocks, most fluctuation is caused by consumer and investor emotions.

What do you use to monitor mortgage rates?

There are several great subscription based services available to monitor Mortgage Bond pricing.

The key is to make sure the lender is aware they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon… and not the 10-Year Treasury Note or the news media.

When the Fed changes rates, why do mortgage rates move in the opposite direction?

It is a common misconception that when the Federal Reserve implements a rate cut it is immediately correlated to a reduction in mortgage rates.

The Federal Reserve policy influences short term rates known as the Fed Funds Rate (“FFR”). Lowering the FFR helps to stimulate the economy and increasing the FFR helps to slow the economy down. Effectively, cutting interest rates (FFR specifically) will cause the stock market to rally, driving money out of bonds and creating potential for inflation.

Mortgage Bond holders need to obtain a higher rate of return on their money if inflation is increasing, thus driving up mortgage rates. With the Federal Reserve Board meeting every six weeks, this is an important question to ask. If your lender does not have a firm understanding of this relationship, they may leave your rate unprotected costing you thousands of dollars over the life of your mortgage.

Do different programs have different interest rates?

Conventional, FHA and VA loans can all carry different rates on a 30-Year fixed mortgage. FHA and VA loans are insured by the Federal Government in the event of defaults. Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.

Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk. While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program suits your needs.

Why is an Adjustable Rate Mortgage (ARM) rate lower than a fixed rate mortgage?

An Adjustable Rate Mortgage (ARM) is usually fixed for a specific period of time. The period is typically 6 months, 1 year, 3 years, 5 years or 7 years. The shorter time period the rate is fixed, the lower the interest rate tends to be initially.

This is due to the borrower taking the future risk of increasing interest rates. The only instance where this would not be true is when there is an inverted yield curve where short-term rates are higher than long-term rates.

Why are rates higher for different property residence types?

Mortgage interest rates are based on risk-based pricing. Risk-based pricing allows adjustments to par pricing for risk factors such as; FICO scores, Loan-to-Value percentages, property type (SFR, Condo, 2-4 Units), occupancy (Primary, Vacation or Investment) and mortgage type (Interest Only, Adjustable Rate etc).

This allows the investors who lend their money for mortgages to receive additional compensation for taking additional risk.

If the borrower encounters a financial hardship, are they more likely to make the payment on the home they live in or the one they rent out?

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Why Do I Need To Pay A VA Funding Fee?

The VA Funding Fee is an essential component of the VA home loan program, and is a requirement of any Veteran taking advantage of this zero down payment government loan program.

This fee ranges from 1.25% to 3.3% of the loan amount, depending upon the circumstances.

On a $150,000 loan that’s an additional $1,875 to almost $5,000 in cost just for the benefit of using the VA home loan.

The good news is that the VA allows borrowers to finance this cost into the home loan without having to include it as part of the closing costs.

For buyers using their VA loan guarantee for the first time on a zero down loan, the Funding Fee would be 2.15%.

For example, on a $150,000 loan amount, the VA Funding Fee could total $3,225, which would increase the monthly mortgage payment by $18 if it were financed into the new loan.

So basically, the incremental increase to a monthly payment is not very much if you choose to finance the Funding Fee.

Historical Trivia:

Under VA’s founding law in 1944 there was no Funding Fee; the guaranty VA offered lenders was limited to 50 percent of the loan, not to exceed $2,000; loans were limited to a maximum 20 years, and the interest rate was capped at 4 percent.

The VA loan was originally designed to be readjustment aid to returning veterans from WWII and they had 2 years from the war’s official end before their eligibility expired. The program was meant to help them catch up for the lost years they sacrificed.

However, the program has obviously evolved to a long term housing benefit for veterans.

The first Funding Fee was ½% and was enacted in 1966 for the sole purpose of building a reserve fund for defaults. This remained in place only until 1970. The Funding Fee of ½% was re-instituted in 1982 and has been in place ever since.

The Amount Of Funding Fee A Borrower Pays Depends On:

  • The type of transaction (refinance versus purchase)
  • Amount of equity
  • Whether this is the first use or subsequent use of the borrower’s VA loan benefit
  • Whether you are/were regular military or Reserve or National Guard

*Disabled veterans are exempt from paying a Funding Fee

The table of Funding Fees can be accessed via VA’s website – CLICK HERE

The main reason for a Veteran to select the VA home loan instead of another program is due to the zero down payment feature.

However, if the Veteran plans on making a 20% or more down payment, the VA loan might not be a great choice because a conventional loan would have a similar interest rate, but without the Funding Fee expense.

A beneficial way to view the VA Funding Fee is that it is a small cost to pay for the benefit of not needing to part with thousands of dollars in down payment.

* Disclaimer – all information is accurate as of the time this article was written *

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How Much Can I Afford?

How much mortgage money can I qualify to borrow?

This is typically the number one question mortgage professionals are asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term mortgage payment?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $3000 and a qualifying factor of 30% Debt-to-Income Ratio:

$3000 multiplied by .3 (30%) = $900 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $7 per month in payment for every $1000 in purchase price so…

Step 1)  $900 a month divided by $7 = $128.50

Step 2) $128.50 multiplied by 1000 = $128,500 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

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How Are Mortgage Rates Determined?

Many people believe that interest rates are simply set by lenders, but the reality is that mortgage rates are largely determined by what is known as the Secondary Market.

The secondary market is comprised of investors who buy the loans made by banks, brokers, lenders, etc. and then either hold them for their earnings, or bundle them and sell them to other investors. When the secondary market sells the bundles of mortgages, there are end investors who are willing to pay a certain price for those loans.

That market price of those Mortgage Backed Securities (MBS) is what impacts mortgage rates.

Typically, investors are willing to accept a lower return on mortgage backed securities because of their relative safety compared to other investments.

This perception of safety is due to the implied government backing of Fannie Mae and Freddie Mac and the fact that the Mortgage Backed investments are based on real estate collateral. So, if the loan defaults there is real property pledged against potential losses.

In contrast, other investments are considered more risky, specifically stocks which are based on earnings and profit vs real property.  The movement between the two investment vehicles often dictates mortgage rates.

Why Do Mortgage Rates Change?

Mortgage rates fluctuate based on the market’s perception of the economy.

Stocks are considered riskier investments, and therefore have an expected higher rate of return to compensate for that risk. When the economy is thriving, it is presumed that companies will perform better, and therefore their stock prices will move higher. When stock prices move higher – MBS prices generally move lower.  Mortgage Backed Securities, however, thrive when the economy is perceived as not doing well. When investors forecast a faltering economy, they worry that the return on stocks will be lower, so they frequently engage in a ‘flight to safety’ and buy more secure investments such as Mortgage Backed Securities.  Mortgage rates are actually based on the yield of those Mortgage Backed Securities.

Bonds are sold at a particular price based on their value in relation to other available investments.  When a bond is sold it yields a certain return based on that original purchase price.  As the prices of the MBS increases because investors seek their safety, the yield decreases. Conversely, when investors seek the higher returns of stocks and the MBS are purchased in lesser quantities the price goes down.  The lower price results in a higher yield, and this yield is what determines mortgage rates.

How Would I Know if Rates are Expected to Go Up or Down?

UP:

When the economy is growing or is expected to grow, stocks will likely become the more favored investment.

When investors buy more stocks, they purchase fewer MBS, which drives the price down.

When the price of the MBS is lower, the yield increases.

Since mortgage rates are based on the yield of the 30 Year MBS, you would expect rates to increase in this environment.

DOWN:

When the economy appears to be slowing or is doing poorly, investors typically move their money out of the stock market and into the safety of the MBS.

This drives the price of these investments higher, which results in a lower yield.

Since mortgage rates are based on the yield of the 30 Year MBS, you would expect rates to decrease in this environment.

Since these market variables and expectations change multiple times as economic reports are released throughout the course of a week, it is not uncommon to see mortgage rates change several times a day.

Understanding how rates move is not necessarily as important as having a loan officer that is equipped with the technology and professional services to track and stay alerted at the precise moment rates make a move for the better or worse.

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Who Owns My Home If I Have A Mortgage?

Many borrowers believe that when they purchase a property by obtaining mortgage financing, they also own their home.

Technically speaking, full ownership on a property only happens once the mortgage loan amount has been paid in full.

To break this down in more detail, there are a few components of a mortgage:

A Promissory Note is a document signed by the borrower acknowledging their commitment to pay the mortgage back with interest in a specific period of time.

In addition to the terms of repayment, the Note also contains provisions concerning the rights of both parties involved in the agreement.

In some states, a Deed of Trust is used instead of a Mortgage Note. The main difference is that on a Deed of Trust there is a Trustee, which the legal title is vested to in order to secure the repayment of the loan.

There are three parties involved with a Deed of Trust:

1) Trustor – This is the borrower

2) Trustee – This is the entity that holds “bare or legal” title, and is usually the title company which holds the Power of Sale in the event of default and reconveys the property once the Deed of Trust is paid in full.

3) Beneficiary – This is the lender that is getting repaid

Deeds of Trust are easier for lenders to foreclose on than a mortgage because there is no need for a judicial proceeding.

Mortgages on the other hand, have to go through judicial proceedings, which can be expensive and time consuming.

In summary, until you have your promissory note paid in full, you are not the only one with an ownership interest in your property.

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HOA Hurdles to be Aware of When Looking at New Properties

A Home Owner Association (HOA) can have a huge impact on your life when you buy a home in a PUD (Planned Unit Development) or Condominium Project.

According to Wikipedia:

A homeowners’ association (abbrev. HOA) is an organization created by a real estate developer for the purpose of developing, managing and selling a development of homes.

It allows the developer to exit financial and legal responsibility of the community, typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots.

It allows the municipality to increase its tax base, but reduce the amount of services it would ordinarily have to provide to non-homeowner association developments.

Most homeowner associations are incorporated, and are subject to state statutes that govern non-profit corporations and homeowner associations.

State oversight of homeowner associations is minimal, and mainly takes the form of laws, which are inconsistent from state to state.

The Pros and Cons of HOA’s:

A Home Owner Association may have the power to determine the color of your home, the number of pets you have and the type of grass you have to plant.

They also may have the power to levy assessments, dues and fines.

Or, they may be as simple as collecting a few dollars per year to make sure the grass is cut in the common areas.

HOAs are set up by CC&Rs (Covenants, Conditions & Restrictions) and become part of your deed.

The CC&Rs dictate how the HOA operates and what rules the owners, tenants and guests must obey.

You should take the time to review the CC&R for any prospective purchase to make sure that the home you are buying will be right for your lifestyle.

For instance, if you operate an Amway business from your home, it is possible the CC&Rs prohibit this type of activity. Or, if you have two dogs and three cats, the CC&Rs may limit you to one pet.

The CC&Rs are only a portion of the HOA.

Bylaws are another component of HOA’s that reflect the intention of the association.

Each HOA either has a managing Board of Directors, or a third-party property management company.

One issue to be sure you check on is potential assessments.

For instance, recently a Condo Association had a foundation problem and was assessing the members over $10,000 per unit.

Another PUD had a pool that required routine maintenance and certification.

Subdivisions are commonly set up as PUDs with an additional HOA.

Until the subdivision is complete, the builder is generally in charge of the HOA.

When complete, the management of the PUD is typically turned over to the homeowners at a special membership meeting.

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Top 8 Things To Ask Your Lender During The Application Process

Knowing what questions to ask your lender during or before the loan application process is essential for making your mortgage approval process as smooth as possible.

Many borrowers fail to ask the right questions during the mortgage pre-qualification process and end up getting frustrated or hurt because their expectations were not met.

Here are the top eight questions and explanations to make sure you are fully prepared when taking your next mortgage loan application:

1. What documents will I need to have on hand in order to receive a full mortgage approval?

An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.

Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.

There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.

2. How long will the whole process take?

Between processing, underwriting, title search, appraisal and other verification processes, there are obviously many factors to consider in the overall time line, which is why communication is essential.

As long as all of the documents and questions are addressed ahead of time, your loan officer should be able to give you a fair estimate of the total amount of time it will take to close on your mortgage.

The main reason this question is important to ask up-front is because it will help you determine whether or not the loan officer is more interested in telling you what you want to hear vs setting realistic expectations.

You should also inquire about anything specific that the loan officer thinks may hold up your file from closing on time.

3. Are my taxes and insurance included in the payment?

This answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing.

If you include your taxes and insurance in your payment, you will have a higher monthly payment to the lender but then you also won’t have to worry about coming up with large sums of cash to pay the taxes when they are due.

4. Will my payment increase at any point after closing?

Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.

However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to changes in your homeowner’s insurance premiums and property taxes.

5. How do I lock in my interest rate?

It’s good to know what the terms are and what the process is of locking in your interest rate.

Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.

Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.

6. How long will my rate be locked?

Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.

The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.

7. How does credit score affect my interest rate?

This is an important question to get specific answers on, especially if there have been any recent changes to your credit scenario.

There are a few key factors that can influence a slight fluctuation in your credit score, so be sure to fill your loan officer in on anything you can think of that may have been tied to your credit.

8. How much will I need for closing?

*The 2010 Good Faith Estimate will essentially only reflect what the maximum fees are, but will not tell you how much you need to bring to closing.

Ask your Loan Officer to estimate how much money you should budget for so that you are prepared at the time of closing.

Your earnest money deposit, appraisal fees and seller contributions may factor into this final number as well, so it helps to have a clear picture to avoid any last-minute panic attacks.

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Now that you have the background to these eight important questions, you should feel more confident about finding a mortgage company that can serve your personal needs and unique scenario.

Remember, the more you understand about the entire loan process, the better your experience will be.

Most frustration that is experienced during the home buying and approval process is largely due to unclear expectations.

You can never ask too many questions…

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How Do Mortgage Companies Value A Property That Has Not Been Built Yet?

It’s obviously easier to picture the process of estimating value on an existing property in a neighborhood that has a history of home sales, but the task of determining the value on new construction projects does pose some challenges.

Appraisals on homes that haven’t been built yet generally require the contractor and home buyer to supply more documentation in order to get a more accurate estimate of the property’s value.

The main purpose of this article is to give an overview of the appraisal process for a home buyer that is building a home vs purchasing standing inventory.

For some, building a new home can be both exciting and overwhelming.  Watching a project transform from idea to completed home with a front yard, white picket fence and a custom red front door is a rewarding experience.

Even if you are paying attention to all of the information from the beginning, there are still several details that have a tendency to catch even experienced builders off guard.

Game time decisions have to be made as cabinets and corners line up differently than the initial drawing could show, flooring doesn’t match the wall colors, or the sun hits a window the wrong way at dinner time.

While the last minute updates may cost you more money, they might also have an impact on the value of the property.

What Does An Appraiser Need For New Construction?

Plans –

The plans or construction drawings are usually done by your builder or architect. It lays out the floor plan of your home, sizes of rooms and square footage of your home.

They should include a floor plan layout, front elevation, real elevation & side elevations, mechanical and electrical details.

Specifications / Descriptions Of Material –

A “Spec” sheet has the type of construction materials you will be using. For example, whether your home will be built with standard 2 x 4’s or 2 x 6’s.

It also contains the type of insulation, roofing and exterior products that will be used in the construction, as well as floors, counter tops and appliances for the inside dressing.

Cost Breakdown –

The document that breaks down all of the costs associated with the construction, including land, building materials and labor.

A lender can generally provide you with blank forms for the spec and cost breakdown if your builder does not have them.

Plot Plan –

Shows where your home will sit on the site, any accessory buildings, well and septic locations, if applicable, and the finish grade elevations and direction of the drainage.

Once the lender has obtained the above information from you, they will forward a copy to the appraiser. It is the appraiser’s job to determine what the future value of the home will be once it is completed, per your plans, specs & cost breakdown.

Even though an appraiser will use the cost approach in the appraisal report, it is not the value that will ultimately be used by the lender.  The market approach to value, which uses existing sales of homes similar in size, quality, construction and location is the most common approach that lenders want for new construction.

The more complete and detailed your plans, specifications and cost breakdowns are, the more accurate your appraisal will be.

Once your home is complete, the appraiser will be asked to go out and inspect the home. They will report back to the lender what they have found, whether your home was completed according to the plans and specifications originally given, and if the value is the same as originally given in the report.

Sometimes the value has to be adjusted due to changes that were made during construction which may have affected the value of the home.

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Frequently Asked Questions:

Q:  Where can I obtain a set of plans?

Most builders have basic plans they work from, and make modifications specific to their clients’ needs. When building a custom home, it’s generally a good idea to work with a reputable architect.

Q:  Is there a form I can use for the list of specifications?

Yes, HUD has a generic form that most lenders use and it will give the appraiser most of the details they need to complete your appraisal. Anything not listed on this form can be added by you separately on an additional sheet.

Q:  Can I use my contract with the builder for the cost breakdown sheet?

In most cases, the lender will accept the contract, however, they will want the builder to provide a cost breakdown to ensure that the builder has accurately bid your home.

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Calculating Loan-to-Value (LTV)

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.

The LTV Ratio is calculated as follows:

Mortgage Amount divided by Appraised Value of Property = Loan-to-Value Ratio

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.

For Example:

Sally qualifies for a 96.5% Loan-to-Value FHA program, which means she’ll have to bring in 3.5% as a down payment.

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.

$96,500 (Mortgage Amount) / $100,000 (Purchase Price) = .965 or 96.5%

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance required to protect the lender from default.

On a conventional loan, mortgage insurance is usually required if you have an LTV over 80% (one loan is more than 80% of the home’s appraised value). On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance, or call your lender to restructure the payment.

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Frequently Asked LTV Questions:

Q:  Why do the lenders care about Loan to Value?

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.  Also, with a lower LTV the lender will lose less money in case of a foreclosure.

Q:  Can I drop my mortgage insurance on an FHA loan?

The mortgage insurance on an FHA loan is structured differently than a conventional loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.

Q:  What does CLTV stand for?

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
(1st Mortgage Amount + 2nd mortgage amount) / Appraised Value of Property = CLTV

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