What does LTV stand for?
You'll encounter many acronyms when you start speaking with mortgage and real estate professionals and it's easy to feel overwhelmed. Have no fear, we're here for you!
LTV stands for the Loan-to-Value ratio. What does that mean? LTV describes the loan amount as a percentage of the purchase price or value of the property.
You're looking at a house that's perfect for you in every way. It's listed for $250,000. You've been saving up for this purchase and you have money set aside for a down payment and closing costs, plus hopefully a few extras. Working with your favorite loan officer, you're trying to figure out how much to put into the transaction so your monthly payment will be in that manageable sweet spot and you'll have a little left over to cover moving costs, furniture purchases and any unforseen needs. Closing costs (the amount of money you'll need to pay to cover the transaction, like transfer taxes and that kind of thing) can be estimated. The big question is, how much should the down payment be? You look at a few scenarios.
If you put 5% toward the home purchase, you'll be borrowing 95% of $250,000, which is $237,500. Said in another way, the loan ($237,500) to value ($250,000) would be 95%. Try saying that five times fast. Then you'll appreciate how easy it is to say, "95% LTV."
Wanted to look at a 20% down payment? That would be simplified to "80% LTV."
It's basically a quick way to say how much money is being borrowed without getting into specific dollar amounts. It works on refinances, too. Want to refinance your home so you're no longer paying monthly mortgage insurance? You might start talking to that favorite loan officer about mortgage loan programs at or under 80% LTV, since that's often the mark where mortgage insurance is no longer required.
See? It rolls off the tongue after you get used to it. Go ahead and try it out the next time you speak with your real estate agent or loan officer. It's an easy way to discuss your home financing options before getting too deep into exact dollar amounts, and it might just impress your friends.