How Loan To Value Affects Mortgage Rates On Loan Programs

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How Loan To Value Affects Mortgage Rates On Loan Programs

This BLOG On How Loan To Value Affects Mortgage Rates On Loan Programs Was UPDATED On July 8th, 2018

How Loan To Value Affects Mortgage Rates:

Loan to Value is calculated by taking mortgage loan balance divided by the appraised value of the home.

  • Loan to Value is taken into consideration by all mortgage lenders especially on conventional loans
  • All lenders have minimum loan to value requirements on loan programs
  • For example, for FHA Loans , lenders require a minimum 3.5% down payment on a home purchase
  • The maximum loan to value cannot be greater than 96.5% LTV
  • On FHA refinance mortgage loan, the maximum loan to value cannot be greater than 97.75% Loan to Value
  • There are no loan to value requirements on FHA Streamline Refinance Mortgages
  • This because no appraisal is required

How Loan To Value Affects Mortgage Rates On FHA Loans

FHA requires a minimum down payment of 3.5%, 96.5% loan to value, on a home purchase for mortgage loan borrowers with at least a 580 credit score

  • If credit scores fall between 500 and 579, a minimum down payment of 10% or 90% loan to value is required
  • The 96.5% loan to value requirements is for properties that are owner occupied
  • One to four unit residential properties qualify
  • The maximum loan to value allowed for a FHA cash out refinance mortgage is 85% LTV

How Loan To Value Affects Mortgage Rates On Conventional Loans

Minimum loan to value requirements on conventional loans for first time home buyers or home buyers who did not own a home in the past three years is 97% Loan to Value.

  • To qualify for 3% down payment conventional loans, borrowers needs higher credit scores
  • Mortgage Rates on 97% LTV Conventional Loans are higher than 95% LTV
  • For other home buyers the minimum loan to value is 95% loan to value on a home purchase with a conventional loans
  • This means the home buyer needs to put down a 5% down payment
  • For two to four unit properties, a minimum loan to value of 85% LTV is required which means the home buyer needs to put down 15% down payment on a two to four unit home purchase
  • The maximum loan to value allowed on a cash out conventional refinance mortgage loan is 80% LTV

Mortgage Rates On VA And USDA Loans

Home buyers who are members of the U.S. Armed Services and qualify for VA Loans can qualify for VA Loan with 100% Loan to Value which means no down payment is required.  For cash out VA Refinance Mortgage Loans, the maximum loan to value allowed is 100% LTV.

Like VA Loans, USDA Loans allow up to 100% loan to value on a home purchase USDA Loan which means no down payment is required.

What Factors Determines Mortgage Rates On Jumbo Mortgages

Normally, Jumbo Mortgages require a 80% loan to value.

  • There are Jumbo Mortgage Loan programs that will allow up to a 90% loan to value or 10% down payment on a high end home purchase
  • Most traditional jumbo lenders require 720 credit scores or higher
  • Gustan Cho Associates Mortgage Group offers non-qm jumbo mortgages and non-qm jumbo mortgages for self employed borrowers
  • Minimum credit scores are 620 and maximum debt to income ratios are capped at 50%
  • Mortgage rates depends on borrowers credit scores and loan to value

Mortgage Rates And Loan To Value

Loan to Value affects mortgage rates.  The higher the loan to value, the more risk the mortgage lender has and the higher the mortgage rates.  That is the reason why conventional mortgage lenders will require private mortgage insurance for borrowers who have loan to value higher than 80% LTV.  Borrowers who purchase a home with a loan to value of 80% or lower do not require private mortgage insurance. Lenders do not require mandatory escrows if loan to value is less than 80%.

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