Maximize your mortgage potential with a solid understanding of Loan-to-Value (LTV) ratio. Unlocking the Secret to Mortgage Success.

Unlocking the Secret to Mortgage Success

When you plan to buy a home and need a mortgage, you’ll encounter the loan-to-value ratio (LTV). Lenders use the LTV ratio to assess your risk as a borrower and decide the terms of your mortgage. It’s the percentage of the loan amount compared to the property’s value. For instance, if you want to borrow $200,000 for a $250,000 home, the LTV ratio is 80% ($200,000 / $250,000).

Calculating the LTV Ratio:

To find the LTV ratio, divide the loan amount by the property’s appraised value or the purchase price, whichever is lower. A professional appraiser determines the appraised value.

Imagine a home’s purchase price is $300,000, and its appraised value is $290,000. The LTV ratio uses the lower value: of $290,000.

Loan Amount / (Appraised Value or Purchase Price) = LTV Ratio

If you want to borrow $240,000, the LTV ratio is 82.76% ($240,000 / $290,000).

Why LTV Ratio Matters and Its Benefits:

Knowing your LTV ratio matters because it impacts your mortgage terms. A higher LTV ratio makes the loan riskier for lenders, which could lead to higher interest rates, stricter requirements, or the need for private mortgage insurance (PMI).

To avoid PMI, aim for a down payment of at least 20% of the purchase price, resulting in an LTV ratio of 80% or lower. Some mortgage programs, like FHA and VA loans, allow for smaller down payments and higher LTV ratios.

Additionally, understanding your LTV ratio helps you figure out your home equity. As you make mortgage payments, your LTV ratio drops, and your equity grows. This information is helpful if you plan to refinance or sell your home.

Grasping the loan-to-value ratio is essential when obtaining a mortgage. It helps you comprehend your risk as a borrower and your mortgage terms. To lower your LTV ratio and save money long-term, consider a larger down payment or explore various mortgage programs.

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The Federal Open Market Committee Indicates Taper End In March, Rate Hike in our midst! Read on

FOMC Indicates Taper End In March, Rate Hike Soon

Officials at the Federal Reserve have been persuaded by rising inflation and a solid labor market that interest rates must be increased “soon.” However, a specific date has yet to be announced.

The Federal Open Market Committee (FOMC) resolved on Wednesday to hold the federal funds rate target range at 0 to 0.25 percent, but it is expected that rates will be hiked in early March.

Mortgage-backed securities and loan rates will rise in 2022 due to the announcement of a rate hike and the closure of the pandemic-era asset purchasing policy, which will strain mortgage-backed securities. For a typical 30-year mortgage, mortgage rates are currently above 3.5 percent, and the Mortgage Bankers Association predicts that by the end of the year, mortgage rates will rise to 4%. Read More

California Platinum Loans

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Revamp Your Retirement: Downsizing and a Reverse Mortgage and Achieve Financial Freedom Today

freedom

Can you downsize your home and also use a reverse mortgage? Yes, and a growing number of people are choosing to downsize and also use a reverse mortgage at the same time.

How Did One Couple Downsize And Use A Reverse Mortgage?

Here’s a possible example (fictionalized): one Southern California couple sold their 4,000 square foot home for $1.5 million. They relocated to a 2,000 square foot home in a community closer to where their children live in Utah. 

Their new, smaller home in Utah cost $450,000. The couple was able to invest another portion of the proceeds from the sale of their home.

The couple was also able to use a reverse mortgage to provide income for their new downsized lifestyle. Combining downsizing with a move and a reverse mortgage allowed them to have the retirement lifestyle of their dreams.

Combining Downsizing, Moving, and Reverse Mortgages

People traditionally view mortgages and moves as separate from income and lifestyle changes. But your overall financial health is affected by all three. Also, if you’ve lived in your home a long time, you’ve probably built up a lot of equity. 

Downsizing from a larger, older home is straightforward. You can sell your older home and receive significant equity, especially if your mortgage has been completely paid off.

Where the transaction becomes more complex is combining a reverse mortgage with a move to a new, smaller home. If you use part of the proceeds to pay for a downsized home, you also have equity in that home.

Couples like our fictional example can provide themselves with income through a reverse mortgage. There’s one thing to consider with a reverse mortgage, however: there are principal limits.

According to the Consumer Financial Protection Bureau (CFPB), how much you can borrow using a reverse mortgage depends on your age, the loan’s interest rate, and your home’s value. 

In the case of a combined original home sale, downsizing, and new home purchase, the reverse mortgage amount will be influenced by the value and equity of your new home as well as your age and the age of your spouse or partner.

Combining the sale of an older, larger home with a move to a new, smaller home, along with using a reverse mortgage to provide income could be a good choice for many older adults. The process is complex, however. Fortunately, there are specialists with experience in the field who can guide you through the process, like California Platinum Loans. Contact them today to discuss your options.


Sources:

Brown, Jeff. “Pros and Cons of Downsizing and Reverse Mortgages,” U.S. News & World Report, url: https://money.usnews.com/investing/real-estate-investments/articles/2017-09-07/pros-and-cons-of-downsizing-and-reverse-mortgages

Consumer Financial Protection Bureau. “How much money can I get with a reverse mortgage loan, and what are my payment options?”

California Platinum Loans

  https://californiaplatinumloans.com