Loan To Value Ratio Information For Prospective Home Buyers

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You must have never ever paid attention to such issues as what are the essential requirements that is considered by the banks and the mortgage lenders before they provide you with a loan approval? It is not such a secret process after all; at least that is what the potential homebuyers feel. Waiting to get an approval from the mortgage lender may not be a very soothing experience but it is unavoidable at the same time. The tactics that are used by the banks or the mortgage lenders to determine whether you are eligible to apply for loans is done with the help of debt to income ratio but that is only one part of the story. The other half includes the value of the home itself and you are in no way involved in this calculation. In other words, they take into account the loan to value ratio.
The loan to value ratio is calculated by dividing the mortgage amount by the estimated value of the home and the results are observed by the mortgage lender. The result that they are going to achive will come out as a percentage amount that is referred to as the loan to value ratio for that house and the success of the mortgage approval ...
... will depend on this issue. However, the most important fact is that the value of the loan should comprise of a lower amount than the value of the house that is to be bought. As a matter of fact, the loan application approval will get through with more convenience if the percentage of loan to value is lower simply because it seems a less risky proposition to the mortgage lenders.
If the loan to value ratio exceeds hundred percent, it is a bad indication but in a majority of cases it may simply be a myth. However, such results will imply that the total amount of outstanding on the home has surpassed the value of the home. Under such circumstances, you may not be able to sell the home without paying off the closing costs of the mortgage. The prospective homeowner should remember that the mortgage lender will always stick to his own interest and will most likely reject those applications that are risky in nature. We have witnessed similar incidents in the past that have led to the famous mortgage crisis that is still continuing in the current times.
The loan to value ratio may also have some implications on the amount of mortgage interest that is to be paid by the borrower each month and the entire issue is somewhat associated with the risk factors that are taken into account by the mortgage lender. The loan-to-value ratio also affects the interest rate a borrower may be required to pay over the life of the loan because the selection of an interest rate is partially determined by the risk factor to the lender. A ratio above eighty percent is certainly important because it will be impossible to sell the loan in the secondary market and this is something that the mortgage lenders try to avoid the most. In conclusion, it can be said that the lower the loan to value ratio, the higher are the chances of getting a mortgage approval faster.