Selling Guide

Published June 02, 2021

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B2-1.2-01, Loan-to-Value (LTV) Ratios (12/16/2020)

Introduction

This topic contains information on LTV ratios, including:

 

Calculation of the LTV Ratio

The maximum allowable LTV ratio for a first mortgage is based on a number of factors including, the representative credit score, the type of mortgage product, the number of dwelling units, and the occupancy status of the property.

The following table describes the requirements for calculating LTV ratios for a first mortgage transaction. The result of these calculations must be truncated (shortened) to two decimal places, then rounded up to the nearest whole percent. For example:

  • 94.01% will be delivered as 95%, and

  • 80.001% will be delivered as 80%.

The rounding rules noted above also apply to the CLTV and HCLTV ratio calculations. Lenders' systems must contain rounding methodology that results in the same or a higher LTV ratio.

Underwriting Method Type of Transaction Calculation of the LTV Ratio1
Manual and DU Purchase money transactions Divide the original loan amount by the property value. (The property value is the lower of the sales price or the current appraised value.)
Manual and DU Refinance transactions Divide the original loan amount by the property value. (The property value is the current appraised value.)
Manual Co-op share loans See Calculating the LTV ratio for Co-op Share Loans in B4-2.3-04, Loan Eligibility for Co-op Share Loans.
Manual and DU Mortgages with financed mortgage insurance Divide the original loan amount plus the financed mortgage insurance by the property value. (The property value is the lower of the sales price or the current appraised value.)

 

 

Refer to the Eligibility Matrix for maximum allowable LTV ratios.

 

Sales Price and Appraised Value Used by DU

DU uses information in the loan application to determine the sales price and appraised value it uses to calculate the LTV, CLTV, and HCLTV ratios.

DU uses the amounts entered in the following data fields:

Sales price = Line a + Line b + Line c (in Section VII Form 1003 7/05 rev. (6/09) or Section L4 Form 1003 1/2021)

  • Line a = Purchase price/Sales Contract Price (the sales price for purchase transactions, or the cost of construction for construction transactions).

  • Line b = Alterations, improvements, renovations, repairs (the cost of these items for HomeStyle Renovation transactions).

  • Line c = Land (For certain construction or manufactured home transactions the cost or value of the land if the borrower acquired the lot separately).

Appraised value = Property Appraised Value (Property Value in Form 1003 1/2021) in the online loan application.

 

Note: If the estimated value that was submitted to DU differs from the actual value, the lender must correct the information in DU and resubmit the loan casefile.

 

 

Loan-Level Price Adjustments

An LLPA may apply to certain mortgages based on the LTV ratio and representative credit score. These LLPAs are in addition to any other price adjustments that are otherwise applicable to the particular transaction. See the Loan-Level Price Adjustment (LLPA) Matrix.

 

1

As defined in the Glossary E0021, the original loan amount is the amount of the loan as indicated by the note.

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