B2-1.1-01: Loan-to-Value (LTV) Ratios (03/29/2016)
- Marsha Freeman
- Kacey Olson
© Fannie Mae Single Family Selling Guide
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.) |
Note: The LTV ratio calculations shown above may differ for certain mortgage loans. For details on these differences, see B2-1.2-05, Payoff of Installment Land Contract Requirements; B5-2-03, Manufactured Housing Underwriting Requirements; B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions; B5-3.3-01, HomeStyle Energy for Energy Improvements on Existing Properties; B5-3.2-03, HomeStyle Renovation Mortgages: Collateral Considerations; B5-5.1-02, Community Seconds Loan Eligibility; B5-5.1-04, Community Land Trusts; B5-5.3-03, Loans with Resale Restrictions: Underwriting and Collateral Considerations; and B7-1-01, Provision of Mortgage Insurance.
Refer to the Eligibility Matrix for maximum allowable LTV ratios.
Sales Price and Appraised Value Used by DU
DU uses information in the online loan application to obtain the sales price and appraised value it uses to calculate the LTV, CLTV, and HCLTV ratios.
To determine the sales price and appraised value, DU uses the amounts entered in the following data fields:
Sales price = Line a + Line b + Line c in Section VII, where:
Line a = Purchase price (the sales price for purchase transactions, or the cost of construction for construction transactions).
Line b = Alterations, improvements, repairs (for HomeStyle Renovation transactions, the cost of alterations, improvements, or repairs).
Line c = For construction transactions, the cost or value of the land if the borrower acquired the lot separately.
Appraised value = Property Appraised Value in the Additional Data screen.
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.