Real Estate Information Archive

Good Monday Morning!

The month of October saw home sales continue to slide in the Eugene and Springfield area. Also, the number of homes on the market for sale increased. Mortgage rates also declines and the Fed decided to not have another interest rate increase at this time. All of this is good news for home buyers, who have had a rough time with the high interest rates, low housing inventory and high home prices. Right now the questions remains as to where are we headed in the months in front of us and in the year 2024? Many economists are now predicting a continuation of lower mortgage interest rates. If this takes place, it could bring on a much improved market heading into the new year and in the first quarter of 2024. There are many moving parts here, with one of them being the questionable local and national economy. At this time, we can only hope that we see an improving housing market here in Eugene and Springfield. I will keep you updated as we move forward. The following is an article from "Realtor.com that talks about the October 2023 national housing market.

Home sales fell in October to a fresh 13-year low as high interest rates and home prices continued to pummel the housing market.

Home-buying affordability sits near its lowest level in decades, pushing many buyers out of the market. Existing-home sales for the full year in 2023 are on track to be the lowest since at least 2011, according to economist forecasts.

Existing-home sales, which make up most of the housing market, decreased 4.1% in October from the prior month to a seasonally adjusted annual rate of 3.79 million, the lowest rate since August 2010, the National Association of Realtors said Tuesday. October sales fell 14.6% from a year earlier. Sales have been near 2010 levels in recent months.

Even as home-buying demand has slumped, the inventory of homes for sale has stayed low. High rates are making homeowners unwilling to sell and move, because they don’t want to give up their existing low interest rates. The limited supply is a major reason that home prices are rising in much of the U.S.

The national median existing-home price rose 3.4% in October from a year earlier to $391,800, NAR said. That was the highest price for any October in data going back to 1999. Prices aren’t adjusted for inflation.

“Lack of inventory along with higher mortgage rates are really hindering home sales,” said Lawrence Yun, NAR’s chief economist.

This year’s housing-market slowdown is due to the Federal Reserve’s efforts to curb inflation and cool the economy by raising its benchmark interest rate to a 22-year high. The Fed last raised rates in July. Since then, officials have extended a pause in rate increases and are very likely to do so again next month.

Economists surveyed by The Wall Street Journal ahead of the release had estimated that sales of previously owned homes fell 1.5% in October from the prior month.

Mortgage rates climbed to fresh two-decade highs this fall before falling in recent weeks. Homes typically go under contract a month or two before the contracts close, so the October data largely reflect purchase decisions made in August and September.

While mortgage rates have declined since late October, buyers might have already decided to pause their home searches until after the holiday season, said Danielle Hale, chief economist at Realtor.com.

“The surge in rates in October might have caused a lot of households to sort of end their home search for 2023,” she said. “At this point, they might just wait until the spring.”

Nationally, there were 1.15 million homes for sale or under contract at the end of October, up 1.8% from September and down 5.7% from October 2022, NAR said. That was the lowest inventory level for any October in data going back to 1999, Yun said. At the current sales pace, there was a 3.6-month supply of homes on the market at the end of October.

Blaine and Jennifer Nelson found little inventory to choose from as they shopped for their first home this summer. They also had to revise their budget lower as mortgage rates went up.

“On a weekly basis, we were kind of reevaluating…based on where mortgage rates were that week,” Blaine Nelson said.

The Nelsons had their third offer accepted for a four-bedroom house in the St. Paul, Minn., area and the purchase closed in October. “We’re happy just to have a place and to not be going through this stressful experience,” Blaine Nelson said.

The typical home sold in October was on the market for 23 days, up from 21 days a year earlier, NAR said.

Marianne and Elias Doty tried to buy a bigger house for their growing family last year, but they gave up after losing out on several offers to higher bidders. This fall, they found a seven-bedroom house in Sandy, Utah, and bought it in October for about 9% under the listing price. They listed their starter home in Sandy for sale, received four offers and sold it at the listing price.

“It certainly seemed like I had more power as a buyer,” Elias Doty said. Unlike last year, when buyers had to make offers as quickly as possible, “we were able to ponder on this for a whole week,” he said.

About 29% of October existing-home sales were purchased in cash, up from 26% in the same month a year ago, NAR said.

A measure of U.S. home-builder confidence fell in November for the fourth straight month, the National Association of Home Builders said last week.

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

THIS WEEKS HOT HOME LISTING!

Lot 80 Ambleside Dr, Springfield, OR 

Price: $115,000    Acres: 0.23

Huge lot that is surrounded by beautiful homes in the highly sought-after Ambleside Meadows. This lot has fantastic panoramic views of the Coburg hills, so get ready to build your dream home! Seller has preliminary plans that were drawn for this lot...View this property >> 

AND HERE'S YOUR MONDAY MORNING COFFEE!!

Good Monday Morning!

Each year I visit homes for listing inspections and we discover issues that were created by not properly preparing the home for our Oregon wet and sometimes cold weather. Just a little bit of attention this time of year can save you much grief and possibly thousands of dollars in repair costs. Right now, give special attention to your home as the leaves are coming down. Leaves on your, roof, in your gutters and in areas around wood fencing or any wood structures can create some expensive repairs if left too long. Make sure to watch your roof and keep all debris and moss from accumulating. Watch for water leaks. I see more damage from water leaks in homes than any other issue. Leaks can cause dry rot and even create extremely unhealthy mold infestations. Also, trim all of that Summer growth back from plants that have grown into contact with your home. These plants hold moisture against your home and also are insect highways that lead into your home. The following are other home Winterization ideas from an article In "USA Today".

Extreme winter weather can leave neighborhoods and communities without power or other public services for long periods of time, the U.S. Department of Homeland Security warns.

With the risk of damage to your property or personal injury, it's a smart idea to prepare your home for such winter weather emergencies as well as cold weather throughout the season. Even minor issues can evolve into larger problems.

Whether it's for your primary residence or a second home you're leaving vacant, here are tips for winterizing your house: 

• Prepare your plumbing.
• Clean out gutters and clear the roof.
• Insulate the attic.
• Have your heating system serviced.
• Adjust your thermostat.
• Call a chimney sweep.
• Check for drafts.
• Keep rodents out.
• Have a friend on call.
• Move plants elsewhere.
• Have monitoring devices installed and updated.

Prepare Your Plumbing

Ensure your pipes are set up to withstand the cold, and consider utilizing sensors to let you know when there's a problem.

"Burst pipes have become one of the most common issues experienced by homeowners in the winter months, and can be very costly to repair due to the extent of water damage that can occur," Steve Wilson, director of technical underwriting for Palo Alto, California-based home insurance company Hippo, writes in an email. 

In northern states where freezing temperatures are expected during a portion of the year, housing codes require insulation and other methods to keep pipeproperly protected from the cold. Places that don't see regular frost, however, won't necessarily have a basement to keep plumbing warmer or effective insulation to stop heat from escaping. As a result, a day or week of freezing temperatures in parts of North Carolina, Georgia and even Texas can cause a lot of damage, says Anne Cope, chief engineer at the Insurance Institute for Business & Home Safety in Rock Hill, South Carolina. 

If your plumbing runs through a crawl space, consider insulating the pipes or the crawl space itself. "It can be a do-it-yourself project, or it can be a hire-a-handyman project," Cope says.

Wilson also stresses the importance of draining and disconnecting hoses on the exterior of your house to avoid freezing water there. "You can purchase a cover for your exterior faucets inexpensively from your local hardware store," he says.

For additional protection, you can get water-leak and pipe-temperature sensors. The former will let you know if pressure inside the pipe suddenly decreases, indicating a burst pipe, while the latter will notify you of dangerously cold pipes so you can prevent a burst pipe.

Additionally, automatic water shut-off valves are becoming more popular in homes. They stop the flow of water should a pipe freeze and burst, to reduce the amount of damage to the home.

If the house is vacant: If your home is vacant for a long period of time, sensors and a remote water shut-off valve could help prevent damage in the house before you can get there.

Clean Out Gutters and Clear The Roof

Leaves, sticks and other bits of nature make their way onto your roof and into your gutters during the fall. Before the first heavy snowfall, be sure to clear debris from your roof and gutters to prevent a buildup of ice and snow, also known as an ice dam, that can get under shingles and cause leaks and water damage inside your house.

Periodically check for ice dams and other issues on the exterior of your home throughout winter as well, Wilson says.

If the house is vacant: Clear as much debris as you can before you close up the house for the winter, but you may need to have a local friend or contractor finish the job when you're away.

Insulate the Attic

Another way to reduce the chances of an ice dam forming is to insulate your attic floor. This helps keep the living areas of your house warmer, Cope explains.

Cope recommends going up to your attic before the winter weather sets in to examine attic vents, check for leaks and get a look at the insulation. "If your insulation looks terrible, now is a great time of year to get that taken care of," she says.

If the house is vacant: Insulation will help you avoid hefty heating bills during the months that you are not staying in the house.  Good insulation that leads to lower heating and cooling bills can be a plus when you sell the house.

Have Your Heating System Serviced

Have your heating and ventilation system checked and cleaned before the weather gets too cold. If you wait until the first cold snap or snowstorm of the season, many service professionals will be overbooked.

Beyond keeping you warm, a functioning HVAC system during the coldest days of the year is key to avoiding frozen pipes, which can burst inside your walls and cause significant damage.

If the house is vacant: Having your HVAC system serviced before you leave for the season is important so cold temperatures don't cause a bigger issue like a burst pipe.

You may be tempted to turn off utilities like gas, power and water if you plan to be away for months at a time. However, a home left to the elements can sustain a lot of damage that you may not see right away. If any water is left in the plumbing, for example, it can quickly freeze and cause problems when you return home and turn on the utilities, so you must be sure all plumbing is thoroughly drained.

Adjust Your Thermostat

The cost of your heating and cooling bills often plays a part in the temperature you stick with during summer and winter – in summer, you may be willing to keep your house at 72 degrees or higher, while in winter, you may lower the target temperature to 68 degrees. However, make sure the interior of your home doesn't get too cold as exterior temperatures drop – at the very minimum, the heat should kick on before it dips to 50 degrees Fahrenheit inside.

If the house is vacant: It's important to keep a vacant house at a temperature well above freezing; the standard is between 50 and 60 degrees Fahrenheit.

Call a Chimney Sweep

Whether you have a wood-burning or gas fireplace, make an appointment for your chimney to be inspected annually to see if cleaning or repairs are necessary, according to the Chimney Safety Institute of America. In wood-burning fireplaces, a professional will clean out creosote buildup, which comes from burning wood and can cause a fire hazard inside the chimney if it's not cleaned. In any fireplace, it's important to clear animal nests that might be blocking the chimney and to check for issues in the masonry.

If the house is vacant: Be sure to close the chimney flue as well as any hearth doors. By doing so, you'll keep cold drafts from making your furnace work harder and prevent animals from enteringthrough the chimney and getting into other parts of the house.

Check for Drafts

As the weather cools, walk around the house and check for drafts or air leakage, particularly around windows and doors. Use caulk to seal cracks and weatherstripping to help insulate around door and window frames.

If the house is vacant: Checking for drafts and leakage will help cut down on the work your furnace has to do by keeping cold air out.

Keep Rodents Out

Rats and mice invade an estimated 21 million homes in the U.S. each fall, according to Orkin, a pest control company. They typically make their way into homes between October and February, looking for food, water and shelter. Seal holes and weatherstrip around doors and windows to help eliminate points of entry for small animals or insects. 

Move any upholstered furniture from your patio or garage into the house to keep it from becoming rodent nests. Firewood should be kept elevated and away from the exterior walls of your home.

If your house is vacant: Be sure you've removed all food from your pantry before vacating the place, so pests don't have something to feed on if they do get inside. If you have a friend or hired help checking on the property while you're gone, he or she should check for signs of pests inside your home during visits and contact an exterminator if any are found.

Have a Friend on Call

If you go away for vacation or a business trip, it's good to have a friend, relative or neighbor on call for your temporarily vacant house. Especially if a winter storm occurs while you're gone, this person can make sure your power stays on and even shovel the sidewalk to prevent slipping hazards.

If the house is vacant: Your HVAC may be in perfect condition with everything insulated, but you still shouldn't leave the house unchecked for the entire winter. "I wouldn't want someone to think that a property can sit vacant for months at a time without someone coming to check on it. You wouldn't do that with your car," Cope says. If you have friends or relatives nearby who can check on the house every few weeks, ask them to do so. Otherwise, hire a local handyman to regularly check in and ensure the heat continues to work, the power stays on and no critters manage to break their way into the living space. Even if you have security cameras and sensors, line up someone who can come by on short notice.

Move Plants Elsewhere

If you have outdoor potted plants, fall is a good time to bring them inside to keep them alive during the colder months.

If the house is vacant: Any houseplants you want to keep alive should come with you, unless you plan to have someone visit the house often enough to water them.

Have Monitoring Devices Installed and Updated

Water-leak sensors and automatic water shutoffs can help save your house from massive damage due to a burst pipe, but there are plenty of other tools to help monitor your home to keep it running right throughout the season.

"In the winter months, smart devices will serve as your best friend to ensure your home is adequately protected from intruders and that all systems are working properly while you're away," Wilson says. "Some of the most common smart home devices today can track movement, water leaks, smoke alarms and temperature shifts in and outside the home."

If the house is vacant: Make sure any devices you have installed will be able to continuously monitor for long periods of time. "Before leaving your property, ensure you've checked and changed the batteries in your devices, including smoke alarms," Wilson says.

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

THIS WEEKS HOT HOME LISTING!

4927 Silver Lea Ct, Eugene, OR 

Price: $330,000    Beds: 3    Baths: 2.0    SqFt: 1518

This updated manufactured home is on its own land and located on a quiet street. Open floor plan with vaulted ceilings, skylight in the kitchen, laminate flooring and vinyl windows. Sliding French doors lead to a large family room/bonus room for ext...View this property >> 

AND HERE'S YOUR MONDAY MORNING COFFEE!!

Good Monday Morning!

Home sales for October 2023 in Lane County did see you more improvement in the number of homes for sale, which is very good news for buyers who have been struggling to find a home.  Even with the increase in the number of homes for sale, 2.5 months of inventory is a low number.  Remember, healthy Real Estate market maintain 5-6 months of home inventory.  Mortgage interest rates remained steady and even declined slightly.  All of this is good news. Further market improvements will depend greatly on mortgage interest rates and the overall strength of our local and national economy in the months ahead.  Here are the home sales numbers for October 2023.

New Listings

New listings (372) increased 4.2% from the 357 listed in October 2022, and decreased 15.3% from the 439 listed in September 2023.

Pending Sales

Pending sales (299) increased 3.8% from the 288 offers accepted in October 2022, and decreased 13.8% from the 347 offers accepted in September 2023.

Closed Sales

Closed sales (291) decreased 20.1% from the 364 closings in October 2022, and decreased 8.2% from the 317 closings in September 2023.

Inventory and Time on Market

Inventory increased to 2.5 months in October. Total market time increased to 42 days.

Year-to-Date Summary

Comparing the first ten months of 2023 to the same period in 2022, new listings (4,230) decreased 14.3%, pending sales (3,206) decreased 19.4%, and closed sales (3,070) decreased 23.7%.

Average and Median Sale Prices

Comparing 2023 to 2022 through October, the average sale price has decreased 0.3% from $476,900 to $475,600. In the same comparison, the median sale price has decreased 0.3% from $438,400 to $437,000.

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

THIS WEEKS HOT HOME LISTING!

2127 Silver Lea Ct, Eugene, OR 

Price: $599,900    Beds: 3    Baths: 2.5    SqFt: 2018

Freshly updated from top to bottom, this single level ranch style home is located in a quiet cul-de-sac and a short distance to the Ruth Bascom Bike Trail with easy access to downtown Eugene and the University of Oregon. The covered front porch welc...View this property >> 

AND HERE'S YOUR MONDAY MORNING COFFEE!!

Good Monday Morning!

It has been decades since home buyers have had to contend with the high cost of home financing that exists today. If you are considering a home purchase, it is very important that you understand home mortgages and the many options that are available to you. Knowing how the mortgage world will works will not only help you make a good decision with your home financing, but could save you many thousands of dollars. For example, did you know that you can actually buy the rate of a home mortgage down to a lower and more affordable rate? Did you also know that it is possible to have the home seller pay for the rate buy down for your mortgage. This is just one of the many options you have today to help you make an affordable home purchase. It is also important to understand the home mortgage process and the following will give you some information on LTV, which is an important component of a home loan.

Loan-to-value ratio compares the size of a loan used to finance an asset with the value of that asset. It’s commonly considered when you take out a mortgage to purchase a home. If you get a $400,000 home loan for a $500,000 house, for example, your LTV is 80%.

LTV can have a major impact on whether you're approved for a loan and the interest rates and terms you get on that loan. The higher your ratio is, the more risk the lender takes on by lending you money. It may charge a higher interest rate to compensate – or possibly even deny your application if your creditworthiness is in question.

Knowing how to calculate LTV and how it affects various loans is essential if you want to save as much money as possible when borrowing. In some cases, however, a high LTV can be worth it.

What Is LTV?

LTV indicates what percentage of a purchase you're financing with an asset-secured loan. LTV in its simplest form is how much protection the lender has on the value of the property, says Kevin Leibowitz, founder of New York-based Grayton Mortgage and a mortgage broker.

Lenders use the loan-to-value ratio along with other factors to determine the risk of a loan. A high LTV signifies more risk because if you default on the loan, it's less likely that the lender will get enough money by repossessing and selling the asset to cover the remaining loan amount and the costs associated with the process.

"The more money you put down, the less risky you are as the borrower," says Dave Lowell, certified financial planner and founder of Up Your Money Game, a financial coaching and education company based in Utah. "So you'll tend to get a lower interest rate."

When you first apply for a loan, you can reduce the initial LTV by making a down payment or, in the case of an auto purchase, trading in another vehicle as part of the sale. In general, a loan's LTV decreases as you make payments toward its principal amount.

If you have good or excellent credit, your history of responsible credit use and on-time payments can help mitigate some of the risk a lender takes on with a high-LTV loan. And depending on your overall creditworthiness, you may still manage to get the loan at a favorable rate.

But if your credit isn't in great shape, you may have a hard time getting approved with a decent rate unless you can find a way to reduce the LTV significantly.

Read: 

Best Mortgage Refinance Lenders.

How to Calculate LTV 

You can calculate loan-to-value by dividing the loan amount by the value of the asset. Here's the simple formula:

LTV = loan amount / value of asset

Multiply the resulting decimal by 100 to turn it into a percentage. For example, if you're buying a home and the loan amount is $250,000, while the value of the home is $275,000, your LTV is roughly 91%.

What Is Combined LTV?

A combined loan-to-value ratio, or CLTV, is used when you have more than one loan on a property. For example, if you decide to take out a home equity loan, lenders will take the combination of your primary mortgage loan and the proposed home equity loan to determine your eligibility.

Most lenders allow a maximum CLTV of 85%, but some may go as high as 100%.

Read:  

Best Home Equity Loans.

What Is a Good LTV?

Mortgage experts generally agree that a good LTV is 80% or lower. This is particularly true for conventional loans, which typically require private mortgage insurance if your LTV exceeds 80%. This addition to your monthly payment can cost between 0.3% and 1.5% of your loan amount annually.

On a $250,000 loan, that's between $62.50 and $312.50 added to your monthly mortgage payment.

You may also explore government-insured loans, such as Federal Housing Administration loans, which allow an LTV up to 96.5%. U.S. Department of Agriculture and U.S. Department of Veterans Affairs loans offer up to 100% financing.

Keep in mind, though, that a high LTV can come back to bite you. If the value of your house falls, you could end up underwater on the loan, owing more than it's worth. If this occurs, it can be difficult to sell the property or refinance your loan.

Loan-to-Value Ratios by Loan Type

Here are the LTV requirements for various types of home loans:

• It may be possible to take out a conventional home loan with a down payment as low as 3%. You’ll have to pay PMI for a while, but moving forward may be worth it in a low-interest-rate environment. 
• FHA loans allow a down payment as low as 3.5%, so your LTV could be up to 96.5%. However, borrowers with credit scores below 580 have to put down at least 10%, resulting in an FHA loan with an LTV of at most 90%. 
• Eligible borrowers may qualify for a VA or USDA loan with zero down payment, meaning the loan would provide 100% financing (and have a 100% LTV). 
• If you wish to refinance your conventional mortgage, most lenders want to see that you have at least 5% equity in your home. However, you’ll likely get better rates if you have 20% equity and get a refinance loan with a maximum LTV of 80%.

How Does LTV Affect Your Interest Rate?

A higher LTV may result in a higher interest rate. This is because the lender is taking on more risk in the agreement.

Even a small increase in your rate can impact your long-term costs significantly. For example, let's say you have a $250,000 loan that you're paying back over 30 years and your interest rate is 8%. With these terms, you'll pay $1,834 toward principal and interest per month and $410,853 in interest over the life of the loan.

But if your high LTV results in a 8.5% interest rate instead, your monthly payment and total interest charges would increase by $88 and more than $31,000, respectively.

If you're applying for a secured loan, ask the lender how the interest rate changes if you decide to put more or less down on the purchase.

Having a high LTV could still make sense in some situations:

The new loan will save you money. If paying rent is more expensive than making a mortgage payment, says Leibowitz, getting into a home before you have a big down payment could be worth it.

"For those that aren't putting a large percentage down, the most important thing to ask," Leibowitz adds, "is 'Can I afford my mortgage payment, real estate taxes and insurance afterward? Am I comfortable with this payment going forward?'"

A home loan with a low down payment could also make sense if interest rates are low and expected to rise in the future. You can also cancel PMI once you’ve reached 20% equity, which could happen sooner in an area where home values are going up.

You want a hefty emergency fund. Making a significant down payment can reduce your interest rate on a loan. But if you drain your savings account, it can make you financially vulnerable.

"A lot of people view the LTV as an absolute. You never want to do mortgage insurance, it's a waste of money," says Leibowitz. "But it's not the entire part of the story. You've got to make sure that you have enough reserves, and ask, 'What does my financial picture look like after I buy this place?'"

If you put all of your cash toward a home and then you need cash to cover emergency expenses, you can't get that money back from the lender.

You can get more value from the cash elsewhere. If you're getting a low-interest loan, you may get more value by using some of the money you were thinking of putting down and investing it instead.

For example, if having a higher LTV increases your loan from 3.5% to 3.75% and you can get a 7% to 8% average annual return in the stock market, it may not be worth it to put all the money toward the loan.

In today's high-interest-rate environment the opposite could be true: Putting more towards a down payment could help lower your interest rate and make payments more affordable.

How to Lower Your LTV

Whether you're about to make a purchase using a secured loan or you already have one in place, here are some ways to reduce your LTV:

Make a larger down payment. Your LTV is based on your loan amount and the value of your home or vehicle. By putting down more money when you apply for the loan, you'll immediately start out with a lower LTV.

Buy a more affordable home or car. If you can't put more money down – or even if you can – you may consider a more budget-friendly option. By looking for a more affordable home or vehicle, the same down payment will reduce the LTV even more.

Make additional payments. You can do this by adding some money to your monthly payment; paying half the amount due every two weeks, giving you one full extra monthly payment every year; or putting small windfalls like tax refunds and performance bonuses toward your balance.

Wait. Over time, the value of your home should appreciate, and your payments will reduce the principal value of the loan, both of which will consistently reduce your LTV. This process goes more slowly than the other options, but it happens naturally even if you don't do anything extra.

If you have a conventional mortgage with private mortgage insurance, once you cross the 80% LTV threshold, you can celebrate – you don't need to pay for PMI anymore.

Do you want more information on affordable home financing!  Contact me and I can provide you with contact information for home loan professionals who are experts at finding you a home loan that fits your needs and your budget.

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

THIS WEEKS HOT HOME LISTING!

4927 Morely Loop, Eugene, OR 

Price Drop!!

Price: $330,000    Beds: 3    Baths: 2.0    SqFt: 1518

This updated manufactured home is on its own land and located on a quiet street. Open floor plan with vaulted ceilings, skylight in the kitchen, laminate flooring and vinyl windows. Sliding French doors lead to a large family room/bonus room for ext...View this property >> 

AND HERE'S YOUR MONDAY MORNING COFFEE!!

Good Monday Morning!

It has been decades since home buyers have had to contend with the high cost of home financing that exists today. If you are considering a home purchase, it is very important that you understand home mortgages and the many options that are available to you. Knowing how the mortgage world will works will not only help you make a good decision with your home financing, but could save you many thousands of dollars. For example, did you know that you can actually buy the rate of a home mortgage down to a lower and more affordable rate? Did you also know that it is possible to have the home seller pay for the rate buy down for your mortgage. This is just one of the many options you have today to help you make an affordable home purchase. It is also important to understand the home mortgage process and the following will give you some information on LTV, which is an important component of a home loan.

Loan-to-value ratio compares the size of a loan used to finance an asset with the value of that asset. It’s commonly considered when you take out a mortgage to purchase a home. If you get a $400,000 home loan for a $500,000 house, for example, your LTV is 80%.

LTV can have a major impact on whether you're approved for a loan and the interest rates and terms you get on that loan. The higher your ratio is, the more risk the lender takes on by lending you money. It may charge a higher interest rate to compensate – or possibly even deny your application if your creditworthiness is in question.

Knowing how to calculate LTV and how it affects various loans is essential if you want to save as much money as possible when borrowing. In some cases, however, a high LTV can be worth it.

What Is LTV?

LTV indicates what percentage of a purchase you're financing with an asset-secured loan. LTV in its simplest form is how much protection the lender has on the value of the property, says Kevin Leibowitz, founder of New York-based Grayton Mortgage and a mortgage broker.

Lenders use the loan-to-value ratio along with other factors to determine the risk of a loan. A high LTV signifies more risk because if you default on the loan, it's less likely that the lender will get enough money by repossessing and selling the asset to cover the remaining loan amount and the costs associated with the process.

"The more money you put down, the less risky you are as the borrower," says Dave Lowell, certified financial planner and founder of Up Your Money Game, a financial coaching and education company based in Utah. "So you'll tend to get a lower interest rate."

When you first apply for a loan, you can reduce the initial LTV by making a down payment or, in the case of an auto purchase, trading in another vehicle as part of the sale. In general, a loan's LTV decreases as you make payments toward its principal amount.

If you have good or excellent credit, your history of responsible credit use and on-time payments can help mitigate some of the risk a lender takes on with a high-LTV loan. And depending on your overall creditworthiness, you may still manage to get the loan at a favorable rate.

But if your credit isn't in great shape, you may have a hard time getting approved with a decent rate unless you can find a way to reduce the LTV significantly.

Read: 

Best Mortgage Refinance Lenders.

How to Calculate LTV 

You can calculate loan-to-value by dividing the loan amount by the value of the asset. Here's the simple formula:

LTV = loan amount / value of asset

Multiply the resulting decimal by 100 to turn it into a percentage. For example, if you're buying a home and the loan amount is $250,000, while the value of the home is $275,000, your LTV is roughly 91%.

What Is Combined LTV?

A combined loan-to-value ratio, or CLTV, is used when you have more than one loan on a property. For example, if you decide to take out a home equity loan, lenders will take the combination of your primary mortgage loan and the proposed home equity loan to determine your eligibility.

Most lenders allow a maximum CLTV of 85%, but some may go as high as 100%.

Read:  

Best Home Equity Loans.

What Is a Good LTV?

Mortgage experts generally agree that a good LTV is 80% or lower. This is particularly true for conventional loans, which typically require private mortgage insurance if your LTV exceeds 80%. This addition to your monthly payment can cost between 0.3% and 1.5% of your loan amount annually.

On a $250,000 loan, that's between $62.50 and $312.50 added to your monthly mortgage payment.

You may also explore government-insured loans, such as Federal Housing Administration loans, which allow an LTV up to 96.5%. U.S. Department of Agriculture and U.S. Department of Veterans Affairs loans offer up to 100% financing.

Keep in mind, though, that a high LTV can come back to bite you. If the value of your house falls, you could end up underwater on the loan, owing more than it's worth. If this occurs, it can be difficult to sell the property or refinance your loan.

Loan-to-Value Ratios by Loan Type

Here are the LTV requirements for various types of home loans:

• It may be possible to take out a conventional home loan with a down payment as low as 3%. You’ll have to pay PMI for a while, but moving forward may be worth it in a low-interest-rate environment. 
• FHA loans allow a down payment as low as 3.5%, so your LTV could be up to 96.5%. However, borrowers with credit scores below 580 have to put down at least 10%, resulting in an FHA loan with an LTV of at most 90%. 
• Eligible borrowers may qualify for a VA or USDA loan with zero down payment, meaning the loan would provide 100% financing (and have a 100% LTV). 
• If you wish to refinance your conventional mortgage, most lenders want to see that you have at least 5% equity in your home. However, you’ll likely get better rates if you have 20% equity and get a refinance loan with a maximum LTV of 80%.

How Does LTV Affect Your Interest Rate?

A higher LTV may result in a higher interest rate. This is because the lender is taking on more risk in the agreement.

Even a small increase in your rate can impact your long-term costs significantly. For example, let's say you have a $250,000 loan that you're paying back over 30 years and your interest rate is 8%. With these terms, you'll pay $1,834 toward principal and interest per month and $410,853 in interest over the life of the loan.

But if your high LTV results in a 8.5% interest rate instead, your monthly payment and total interest charges would increase by $88 and more than $31,000, respectively.

If you're applying for a secured loan, ask the lender how the interest rate changes if you decide to put more or less down on the purchase.

Having a high LTV could still make sense in some situations:

The new loan will save you money. If paying rent is more expensive than making a mortgage payment, says Leibowitz, getting into a home before you have a big down payment could be worth it.

"For those that aren't putting a large percentage down, the most important thing to ask," Leibowitz adds, "is 'Can I afford my mortgage payment, real estate taxes and insurance afterward? Am I comfortable with this payment going forward?'"

A home loan with a low down payment could also make sense if interest rates are low and expected to rise in the future. You can also cancel PMI once you’ve reached 20% equity, which could happen sooner in an area where home values are going up.

You want a hefty emergency fund. Making a significant down payment can reduce your interest rate on a loan. But if you drain your savings account, it can make you financially vulnerable.

"A lot of people view the LTV as an absolute. You never want to do mortgage insurance, it's a waste of money," says Leibowitz. "But it's not the entire part of the story. You've got to make sure that you have enough reserves, and ask, 'What does my financial picture look like after I buy this place?'"

If you put all of your cash toward a home and then you need cash to cover emergency expenses, you can't get that money back from the lender.

You can get more value from the cash elsewhere. If you're getting a low-interest loan, you may get more value by using some of the money you were thinking of putting down and investing it instead.

For example, if having a higher LTV increases your loan from 3.5% to 3.75% and you can get a 7% to 8% average annual return in the stock market, it may not be worth it to put all the money toward the loan.

In today's high-interest-rate environment the opposite could be true: Putting more towards a down payment could help lower your interest rate and make payments more affordable.

How to Lower Your LTV

Whether you're about to make a purchase using a secured loan or you already have one in place, here are some ways to reduce your LTV:

Make a larger down payment. Your LTV is based on your loan amount and the value of your home or vehicle. By putting down more money when you apply for the loan, you'll immediately start out with a lower LTV.

Buy a more affordable home or car. If you can't put more money down – or even if you can – you may consider a more budget-friendly option. By looking for a more affordable home or vehicle, the same down payment will reduce the LTV even more.

Make additional payments. You can do this by adding some money to your monthly payment; paying half the amount due every two weeks, giving you one full extra monthly payment every year; or putting small windfalls like tax refunds and performance bonuses toward your balance.

Wait. Over time, the value of your home should appreciate, and your payments will reduce the principal value of the loan, both of which will consistently reduce your LTV. This process goes more slowly than the other options, but it happens naturally even if you don't do anything extra.

If you have a conventional mortgage with private mortgage insurance, once you cross the 80% LTV threshold, you can celebrate – you don't need to pay for PMI anymore.

Do you want more information on affordable home financing!  Contact me and I can provide you with contact information for home loan professionals who are experts at finding you a home loan that fits your needs and your budget.

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