Loan-To-Value Ratio is commonly referred to as LTV. The LTV is the relationship between the amount owed on the mortgage and the appraised value (or sale price if it is lower) of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be

paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%). 

Conventional loans require private mortgage insurance (PMI) for borrowers with an LTV ratio of more than 80% (less than 20% down payment). Private mortgage insurance is not tax deductible, even though it is included in your monthly mortgage payment. Simply put, it is wasted money. This insurance premium is lower if your LTV is slightly above 80%, and more expensive the higher your LTV. A majority of non-conforming loan programs do not have PMI, but pass on slightly higher rates than conforming programs.

Most FHA loans require mortgage insurance. The mortgage insurance charge for 30 yr FHA loans is .5% per year of the loan amount and is charged to the borrower every month. FHA loans will also require an upfront mortgage insurance premium of 1.5%. br>
VA loans, on the other hand, do NOT require PMI. In fact, lenders are prohibited from requiring private mortgage insurance on VA loans. However, borrowers are required to pay a one-time funding fee on VA loans of 2.25% of the loan amount. Usually, this funding fee is added on to the loan amount and not paid out of pocket.



Loan-To-Value (LTV) Ratio 
70% or less

If you only need a mortgage of 70% or less of the sale price of the home, your approval process will be relatively easy, and you should be able to get a better rate. Higher downpaymnets are also helpful when trying to finance a property that has deferred maintenance or obvious cosmetic repairs. These are typical with most investor loans. 

71-80%

If you need a mortgage from 71-80% of the sale price of the home, your process should still be relatively simple. You may need to obtain more financial records than if your mortgage was less, but you should be free from the mortgage insurance requirement and more competitive interest rates. A majority of investor property loans require 20% downpayments.

81-90% + PMI

For a mortgage from 81-90%, lenders will require private mortgage insurance (PMI) as well as more detailed financial information. The private mortgage insurance may be discontinued on once the LTV ratio reaches a certain point. Usually, the borrower must initiate this change. 

95-100% + PMI

If you require a loan of 95-100% of the purchase price of your home, an FHA loan, or a VA loan (if you qualify), may be a good choice. There are also many non-conforming programs that offer 100% financing to buyers with decent credit. 100% financing programs will usually come with a higher interest rates when compared to 3%-20% down payment programs.

Greater than appraised value

In aggressive markets, some lenders will offer loans totaling 110-125% of the purchase price of the home. Rates on these loans are likely to be substantially higher than conventional loans.