To make a decision about loans and financing the most common measure lenders may use is the loan-to-value ratio (LTV).
When a borrower first applies for a mortgage, this equation compares the amount of the loan they are expecting to the home’s value.
If the borrower has a current mortgage, their LTV ratio would be based on their loan balance.
LTV ratio is the deciding factor if a customer is required to have private mortgage insurance (PMI) or if they can qualify to refinance.
To know their LTV ratio, a homeowner should divide their current loan balance (which can be found on their monthly statement or online account) with the home’s appraised value. to convert it to a percentage that number should be multiplied by 100.
Loan to value ratio = current loan balance / current appraised value X 100
To determine one’s loan to value ratio it is ideal to get a professional appraisal of the home done.
A lender can arrange for a qualified appraiser to come to your home and assess its value to get an on-site appraisal done.
To determine what your home is worth, a home appraisal is the most accurate way, but there are other free online tools that can also provide an estimate of your home’s value.