In the simplest terms, the loan-to-value ratio (or LTV) is the percentage of a home’s purchase price that is covered by loans.
If a buyer is coming up with a 20 percent down payment and the rest is to be covered by a purchase mortgage, the loan-to-value ratio is 80 percent. Obviously, the lower the loan-to-value ratio, the more satisfied the lender is, because the buyer has more of his or her money in the deal and is less likely to walk away if troubles arise.
You probably don’t need a calculator to realize that a 20 percent down payment is a huge sum of money — especially for most first-time buyers — when home prices are well into six digits.
How do most new buyers come up with, say, $120,000 (plus closing costs) to purchase a $600,000 home? (Indeed, most people can only come up with a sum that substantial from the proceeds of the sale of their prior home.)
However, there are loans available with higher loan-to-value ratios — 90 percent, 95 percent, 97 percent, even 100 percent. These allow the homebuyers, who are capable of making payments but have no way of coming up with a huge down payment, to purchase their first home.
So if you are one of many people who have thought they couldn’t own a home because they can’t get together a large down payment, think again! There are now a variety of home loans available with very small down payments required.
And lenders have never been more eager to lend to qualified borrowers. The interest rates are unbelievable! In just the past several months, loan availability and interest rates have become too good to pass up — another reason that makes now a smart time to buy!
— Paul Suding, a real estate agent with Cool Santa Barbara Homes and Village Properties, is president of the Santa Barbara Association of Realtors. He can be contacted at .(JavaScript must be enabled to view this email address) or 805.455.8055.
Comments
