What is a loan-to-value ratio and how does it relate to my costs?

Tip

Learn how mortgage rules may help you when you shop for a mortgage.

Mortgage lenders may use the LTV to decide whether to lend to you and determine if they will require private mortgage insurance or use of a loan guaranteed or insured by the government such as an FHA loan. If you will need private mortgage insurance or are getting a government-backed loan, it may increase your upfront and monthly costs. Be sure to compare the amounts, terms, and costs of several loans, including the cost of mortgage insurance if it will be required.

Lenders will use the LTV to determine how much you can borrow, and the interest rate you will be offered. Higher-risk borrowers, those with a higher LTV, will usually be offered a higher interest rate. You may be able to get a better interest rate with a larger down payment.

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