Getting A 90% Mortgage : The Loan To Value Ratio

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Mortgages owned or guaranteed by government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, are the only ones that qualify for The Home Affordable Refinance Program. Congress created the GSEs to provide liquidity to the mortgage market. Fannie Mae buys mortgages from banks and other financial institutions that originate mortgages. This allows banks to free up capital to originate new loans. HARP loans must meet Fannie’s strict underwriting requirements. The loan-to-value (LYV) is the ratio of the property value relative to the principal balance. The higher the LTV, the riskier the loan.

This is why banks normally do not allow a LTV over 90 percent. However, under the Home Affordable Refinance Program, the LTV ratio on your home can be as high as 125 percent. This benefits borrowers who wouldn’t normally qualify for refinance through normal channels. Fannie Mae also allows borrowers to refinance mortgages with LTVs above 80 percent where private mortgage insurance is required. Fannie Mae does not take your credit score into consideration for HARP. Rather, the mortgage lender makes the final determination whether it will submit your application to Fannie Mae based on your credit history.

The biggest criteria are your ability to repay your financed mortgage. Lenders must obtain verbal verification of your employment and verify all non-employment income. You must be current on your existing mortgage with documented proof of making 12 consecutive payments and have not been delinquent by more than 30 days within that time.

Are 100% mortgages or 80/20s a good idea? Are they even available anymore? Yes and Yes. This is an owner-occupied home.

Another client used an 80/20 mortgage to eliminate all her debt. She and I reasoned it was better to retire her debt-20K of it that was at 10-20% interest-than to put her 20K towards the home. Now that she’s out of debt, she’s saving $600-700 month. The 100% mortgage only increased her house payment $200 then encouraged her to use some of the $500 savings and apply it back on the house so it’s paid off in 15 years. In the mortgage world, the best mortgage is the one that helps one move forward financially.

Most people who put 5-10% down on a home do so to lower their monthly payment and/or to get a better mortgage rate. Mortgage Rates improve the more you put down because there is less the risk of default. A person who puts 20% is less likely to default than a person who only puts 5% down. Therefore the more you put down on a home the lower your rate, the lower your payment. One’s mortgage rate is tied to the overall risk of the loan; the more down payment, the better rate, the better payment.


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