When it all comes down to it, lending is a very risky endeavor, and every borrower that a lender entertains is a risk all its own. On that note, loan-to-value and combined loan-to-value ratios are among the key risk factors that Learning Bee first assesses when judging if a borrower is a good or bad risk to invest in. The chance for default has always been at the forefront of lending choices, and the possibility of a lender absorbing a loss in the foreclosure process rises as the amount of equity falls.

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is defined as a ratio that shows the amount of a first mortgage line as a percentage of the sum of a real estate property's appraised value. For example, if a borrower wants to get a $550,000 loan in order to buy a home worth $700,000, the LTV ratio for that is $550,000 /$700,000 or 79%. In turn, an appraiser usually measures the property value, but there's no greater measure of the real property value than actual negotiations between a buyer and seller.

Furthermore, as the LTV ratio of a loan increases, the qualification guidelines for Lending Bee's mortgage deals become stricter and more stringent, which is only fair. Our company reserves the right to compel borrowers of high LTV mortgages to purchase mortgage insurance for added protection on our part from buyer default, which then increases the cost of the mortgage.

Combined Loan-to-Value (CLTV) Ratio

As for combined loan-to-value (CLTV) ratio, it's simply the comparison of loans obtained by a property in connection to its value. Whenever "combined" is added to LTV, it indicates that additional loans on the property have been taken into account in the calculation of the percentage ratio just to get a more accurate assessment of a borrower's risk factors. To put it in plainer terms, it's the ratio between the property value and the primary loan.

CLTV is the amount on top of the LTV that represents the first position mortgage or loan as a fraction of the property value. In any event, differentiating between LTV and CLTV helps determine loan scenarios that involve more than one mortgage. Consult Lending Bee's expert brokers for more information regarding this loan approval issue.