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Monday, June 12, 2006

Loan-to-value ratio (LTV)

A percentage that shows how much equity a borrower will have in a home

LTV compares how much a person plans to borrow versus the property’s value. For example, a 90% LTV loan that means you want to borrow 90% of the home’s price and will have a 10% down payment (or equity if you're refinancing).
This gives you 10% equity in your property.

All lenders use LTV as a guideline to figure out if you’re a high-risk loan candidate. The higher the LTV, the more risk that a lender takes, causing them to carefully examine your finances. Also, if your LTV is over 80%, the lender requires that you buy Private mortgage insurance (PMI).

See: Down payment, Equity, Private mortgage insurance
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