Do you know how to calculate your combined loan to value (CLTV)? It’s an important number to know if you’re applying for a home equity loan or line of credit.
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What is a Combined Loan to Value Ratio?
Your combined loan to value ratio (CLTV) is the percentage of your home’s value that is borrowed. Lenders use the CLTV ratio to determine a home equity line of credit or HELOC amount. The CLTV ratio is not the same as your loan-to-value ratio, or LTV, which only takes into account your primary mortgage when calculating risk.
How to Calculate Combined Loan to Value Ratio
The combined loan-to-value (CLTV) is the ratio of all secured loans on a property to the value of the property. A CLTV of 80% would mean that 80% of the property’s value is financed by loans, and the remaining 20% is the down payment made by the borrower.
Combined loan-to-value ratios are used for both first and second mortgages, as well as for home equity lines of credit. The CLTV for a first mortgage and home equity line of credit can be calculated by adding the loan balances together and dividing by the value of the property. The CLTV for a second mortgage can be calculated by dividing the loan balance by the value of the property.
Loan balances can be found on a borrower’s monthly statement or online account summary. The value of a property can be estimated using an online home value calculator or by asking a real estate agent for a comparative market analysis.
A combined loan-to-value ratio of 80% or less is generally considered to be a good CLTV, as it leaves some equity in the property that can act as a buffer if the value of the property declines or if the borrower needs to sell before having fully repaid their loans. A higher CLTV may be acceptable if the borrower has a good credit history and strong income, but it may also mean that the borrower will have to pay private mortgage insurance if they are unable to make a large down payment.
What is a Good Combined Loan to Value Ratio?
For conventional loans, the ideal combined loan to value ratio is 80% or less. This means that if you have a $100,000 home, you should aim for a mortgage amount that’s no more than $80,000. If you have good credit, you may be able to get a conventional loan with a combined loan to value ratio of 95% or even higher.
How to Improve Your Combined Loan to Value Ratio
If you’re hoping to qualify for a home equity loan or line of credit, maintaining a good combined loan to value ratio is important. This ratio is a key factor that lenders look at when assessing loan applicants, and it can have a major impact on your ability to qualify for the financing you need.
fortunately, there are a few things you can do to improve your combined loan to value ratio and make yourself a more attractive borrower in the eyes of lenders. Here are some tips:
1) Pay down your existing mortgages and loans: One of the best ways to improve your combined loan to value ratio is by paying down the outstanding balances on your existing mortgages and other loans. Doing so will reduce the amount of money you owe in relation to the value of your property, making you a more attractive borrower and helping to improve your chances of qualifying for new financing.
2) Increase the value of your property: Another effective way to improve your combined loan to value ratio is by increasing the appraised value of your property. This can be done by making renovations or improvements that will make your home more valuable in the eyes of appraisers.
3) Refinance your mortgages: If you have multiple mortgages on your property, one option you may want to consider is refinancing them into a single loan. This can help to reduce the overall balance you owe on your property and improve your combined loan to value ratio in the process.