How Loan To Value Affects Mortgage Rates

How Loan To Value Affects Mortgage Rates

Gustan Cho Associates

How Loan To Value Affects Mortgage Rates:

Loan to Value is the mortgage loan balance divided by the appraised value of the home.  Loan to Value is taken into consideration by all mortgage lenders.  All mortgage lenders have minimum loan to value requirements on mortgage loan programs.  For example, for FHA Loans mortgage lenders require a minimum 3.5% down payment on a home purchase so 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 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 FICO credit score.  If your credit scores fall between 500 FICO and 579 FICO, 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 and one to four unit residential properties.  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.  For other home buyers the minimum loan to value is 95% loan to value on a home purchase with a conventional loan, which 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.

How Loan To Value Affects Mortgage Rates On VA Loans

Home buyers who are members of the U.S. Armed Services and qualify for VA Loans can qualify for a 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 90% LTV.

How Loan To Value Affects Mortgage Rates On USDA Loans

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.

How Loan To Value Affects 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.

Mortgage Rates And Loan To Value

Loan to Value affects mortgage rates a mortgage loan borrower gets quoted.  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 and do not require mandatory escrows held by the mortgage lender.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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