FAST FACTS #3 – Mortgage Terminology: LTV (Loan to Value), DTI (Debt to Income)

LTV – Loan To Value ratio.  This is the ratio of a mortgage expressed as a percentage of the value of home.  For example, if you were to purchase a home valued at $100K and you were borrowing $76K, your LTV would be 76%.

The higher the LTV, the bigger risk for the lender. In other words, should you default on a loan with a 40% LTV the bank would only be losing 40% of the value of the home.  If you should default on a loan with a 95% LTV, the bank would stand to lose all but 5% of the value of a home.

This is of particular importance to lenders in a depreciating market  If, for example, the bank were to loan 95% of the value of a home and the market declines by 6% over the course of a year, the amount of the bank’s risk now exceeds the value of the property.

DTI – Debt To Income ratio.  This is the ratio of your monthly expenses expressed as a percentage of your monthly income. This ratio is used, actually to mean two different things.

• The first is based strictly on the monthly cost of the home (Mortgage payment, taxes and insurance) against your total income.
• The second meaning includes ALL of your monthly obligations including credit cards, car loans, etc. against your total income.

Most lenders will look at and set limits for both ratios in determining your qualifications to obtain a mortgage.

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Rick Schwartz,   REALTOR

Homes for sale in Danbury, Bethel, Brookfield, Newtown, New Fairfield, New Milford, Ridgefield and Redding CT.