Learn how credit affects your mortgage


Credit-to-value ratio (LTV) is a financial term used by lenders to refer a loan to a property value. The LTV ratio is one of the key risk factors that lenders assess when qualifying a mortgage borrower.

Calculating the loan-to-value ratio

The risk of default is always the real driver of the security and, finally, the credit approval decisions, and the likelihood of the lender absorbing the loss increases as capital decreases.

Therefore, given the LTV loan enhancement ratio, the qualification guidelines for certain mortgage programs are becoming much stricter. Borrowers may require borrowers with high LTV loans to obtain private mortgage insurance to protect against a customer defect.

Asset valuation is usually determined by the appraiser. Typically, banks will use lesser valuations and purchase price. Let’s first sort out some numbers and then discuss how these value loans fit into the mortgage lending space.

Purchase Scenario # 1 – Estimate is Good (More Than Purchase Price)

  • Redemption price: $ 100,000
  • Estimated value: $ 110,000
  • Payment: $ 20,000
  • Loan amount: $ 80,000
  • Credit to Value (LTV) = 80%

Procurement Scenario # 2 – Estimate Low (Less Than Purchase Price)

  • Redemption price: $ 100,000
  • Estimated value: $ 90,000
  • Payment: $ 20,000
  • Loan amount: $ 80,000
  • Loans to value (LTV) = 89%

Refinancing Scenario # 1 (Standard, No Second Mortgage)

  • Starting Value: $ 100,000
  • Credit Amount: $ 80,000
  • Capital: $ 20,000
  • Credit-value or LTV = 80%

Refinance Scenario # 2 (Multiple Mortgage Loan, Including Second Mortgage)

  • Starting Value: $ 100,000
  • Credit Amount: $ 80,000
  • Second credit balance: $ 10,000
  • Capital: $ 10,000
  • Loans to value or LTV = 90%

Whether you buy or refinance, a home equity loan is important because it helps determine your mortgage rate and eligibility for the loan.

High LTV loans

credit loan calculator

Loans to value are a key factor in your ability to approve a mortgage. Generally, lenders prefer low LTV loans because low LTV loans pose less risk to the bank. That said, there are a number of loan programs specifically designed for homeowners with high LTVs. There are even some programs that completely ignore credit. Here’s a quick overview of the most common high LTV credits.

VA Credit: 100% Credit-Value

VA loans are short term loans guaranteed by the US Department of Veterans Affairs. VA credit guidelines allow for 100% LTV, which means that most VA borrowers do not require any payment. Always check with your lender to ensure your VA VA eligibility is still in place 100% financing. VA mortgages are available to certain active duty soldiers, veterans, military spouses, members of the Reserve and National Guard members, military cadets, and Department of Defense employees.

USDA Loan: 100% Loan-Value

USDA Loan: 100% Loan-Value

USDA loans are loans secured by the US Department of Agriculture. USDA Credits Allow 100% LTV – No Payment Required.

USDA loans are sometimes known as Rural Home Loans, but some suburbs in smaller communities or in further metro areas may also qualify. Check with your lender.

FHA Mortgages: 96.5% loan-to-value

FHA Mortgages: 96.5% loan-to-value

The FHA Mortgage Guidelines require a payment of at least 3.5 percent. Unlike VA and USDA loans, FHA loans are not limited by military background or location – there are no special eligibility requirements and you MUST NOT be a first time homebuyer. If you have average credit, limited assets, or are just starting out on your career, an FHA mortgage might be the best path for you.

Fannie Mae and Freddie Mac Credits: 95% Credits-Value (97% possible)

Conventional loans are loans guaranteed by Fannie Mae or Freddie Mac. Both groups offer 97% LTV mortgage purchases, which means you will have to pay 3% to qualify.

However, 95% or less of value loans are far more common. Compared to FHA credit, conventional financing is advised for homeowners with solid, established credit scores.

“No estimate” refinancing programs

Homeowners who want to save money on their mortgage need to understand how the loan is paid. A higher loan value than a lower-than-expected value can quickly save your savings.

This means that multiple “no estimate” refinancing programs are available to select homeowners. Not only does the lack of valuation speed up the insurance process, it also makes the loan of value irrelevant to those borrowers. Several of these programs are highlighted below.

FHA Streamline Refinance

FHA Streamline Refinance

FHA Streamline Refinance is a special refinancing program available to homeowners with existing FHA mortgages. Official guidelines for FHA Streamline Refinance grading requirements, meaning loans with unlimited LTV are allowed.

VA Streamline Refinance

VA Streamline Refinance

VA Streamline Refinance is a special refinancing program for homeowners with existing VA home loans. The official name of VA Streamline Refinance is the Interest Reduction Refinancing Credit (IRRRL). Similar to the FHA Streamline, VA Streamline Refinance does not require an assessment, nor does it require verification of income, employment or credit for most borrowers.

USDA Streamline Refinance

The USDA Streamline Refinance is only available to homeowners with existing USDA mortgages. Like FHA and VA simplification programs, USDA refinancing eliminates the need for home appraisal. The program is currently in pilot phase and is available in 19 countries.


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