How Does Loan to Value Ratio Affect My Loan Application?

How Does Loan to Value Ratio Affect My Loan Application?

Before we dive into the specifics, let's define what Loan to Value Ratio means. The Loan to Value Ratio is a financial metric used by lenders to assess the risk associated with a loan application. It represents the percentage of the property's value that you are borrowing through the home loan.

Loan to Value Ratio (LVR) is calculated by dividing the loan amount by the appraised value of the property. For example, if you are borrowing $300,000 to purchase a property worth $400,000, the Loan to Value Ratio would be 75% ($300,000/$400,000).

Q: What is the ideal Loan to Value Ratio for a home loan application?
A: While the ideal Loan to Value Ratio may vary between lenders, aiming for an LVR below 80% can increase your chances of obtaining more favourable loan products and avoiding the need for Loan Mortgage Insurance.

Q: Is it possible to get a home loan with a high Loan to Value Ratio?
A: Yes, it is possible to secure a home loan with a high LVR. However, keep in mind that higher LVRs often come with stricter lending criteria, higher interest rates, and the potential cost of Loan Mortgage Insurance. The Australian Government has schemes in place to help you avoid LMI, as your broker we can help you with seeing if you qualify for these schemes.

Q: Does improving my Loan to Value Ratio guarantee loan approval?
A: While a low Loan to Value Ratio improves your chances of loan approval, lenders consider multiple factors when assessing home loan applications. It's important to meet other lending criteria.

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