Loan-to-Value Ratio (LTV) in San Diego — Compass San Diego Housing Market

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Loan-to-Value Ratio in San Diego

Loan-to-Value ratio, or LTV for short, is a measure used in real estate to determine how much of a property’s value is financed through the mortgage compared to the actual value of the property.
LTV tells you how much of the property’s ownership is leveraged with debt. Lenders use this ratio to evaluate the risk associated with a loan. Generally, a lower LTV indicates less risk for the lender, as the borrower has more equity in the property.
Here’s what you need to know about Loan-to-Value ratio (LTV), how to calculate, it and why lenders value it so highly:

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What Is Loan-to-Value in Real Estate?

Loan-to-Value (LTV) is a ratio measured by lenders and homebuyers who use mortgage funding to finance a real estate purchase. It shows what percentage of mortgage is being financed as the borrowed amount, compared the remaining balance being paid as a downpayment upfront.

This metric is one of many tools lenders use to assess their risk when considering a home loan for approval. It affects your loan eligibility and the interest rate you’ll receive. 

What Does Loan-to-Value Mean?

Loan-to-value (LTV) means the percentage of your property value that is cash/equity compared to the amount you’re borrowing as a mortgage. LTV is a ratio expressed as a percentage out of 100%. An LTV under 100% means that you owe less on the loan than your home is worth. This is considered positive equity and is more desirable by lenders.

A high LTV greater than 80% means you’re making a lower down payment. A low LTV below 80% means you’re making a higher down payment. Lower LTVs mean less risk for lenders and better deals for you. Aim for a lower LTV by putting down bigger down payments at close. Keep an eye on property values, as they affect your LTV and refinancing options. Understanding how to balance Loan-to-Value ratio helps you play the real estate game smarter and stay a step ahead.

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Why Is Loan-to-Value Ratio Important?

Lenders use Loan-to-Value ratio to compare a loan amount to the purchase price. For example, if a lender provides a loan worth half the price of the property while you covers the rest in cash, the LTV is 50%. Loan-to-Value ratio also reveals how much equity you have in your home by showing how much money would be left over after selling your home and paying off your loan.

How Is Loan-to-Value Ratio Calculated?

The Loan-to-Value ratio, or LTV, is calculated by dividing the amount borrowed by the appraised value of the property, often expressed as a percentage. On existing mortgages or in the case of refinance loans, LTV is the outstanding loan balance divided by the appraised value.

Simply divide the loan amount by the home value, and then multiply that decimal by 100 to turn LTV ratio into a percentage. Easy, right? The loan-to-value (LTV) ratio shows how much you’re borrowing from a lender as a percentage of your home’s appraised value.  

Loan To Value = Mortgage Amount / Property Value

The higher your LTV, the riskier you’ll appear during the loan underwriting process because a low down payment signals less equity in your property making you more likely to default on your loan. 

Ideal Loan-to-Value Ratio

The ideal Loan-to-Value ratio, or LTV, really depends on your situation and what you’re comfortable with paying each month for a mortgage payment. Generally speaking though, a lower LTV below 80% is usually ideal. That means you’re putting down a bigger chunk of cash upfront and borrowing less, plus avoiding private mortgage insurance (PMI).
It’s like having more equity in your house from the get-go, which can give you some breathing room if finances change or if you need to use your equity in a pinch. Plus, a lower LTV often means you can snag better interest rates & terms on your mortgage, which can save you some serious cash in the long run. It’s all about finding the right balance between how much you can put down and how much you’re comfortable borrowing, so it’s worth crunching the numbers and chatting with a financial advisor to figure out what works best for you.
Here is a quick sample list of loan-to-value percentages from 70% to 95% in increments of five percent, showing what the remaining portion of cash would be due at each LTV amount.

Assuming a purchase price of $1M ($1,000,000) for simplicity sake:

• 70% LTV= 30% cash
(eg: $300K down + $700K mortgage)

• 75% LTV= 25% cash
(eg: $250K down + $750K mortgage)

•  80% LTV= 20% cash
(eg: $200K down + $800K mortgage)

• 85% LTV= 15% cash
(eg: $150K down + $850K mortgage)

• 90% LTV= 10% cash
(eg: $100K down + $900K mortgage)

• 95% LTV= 5% cash
(eg: $50K down + $950K mortgage) 

VA Loan Limits San Diego County

VA home loan limits are the same as the Federal Housing Finance Agency (FHFA) limits. These are called conforming loan limits. Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as these conforming loan limit (CLL) values.  Loans above this amount are known as jumbo loans.
A Loan-to-Value (LTV) ratio of up to 100 percent is allowed on VA loans, meaning a 0% down payment is possible. The Federal conforming loan limit values for mortgages that finance properties in San Diego County increased during 2024, with limit values rising in our high-cost area.

2024 Fannie Mae & Freddie Mac Conforming Loan Limits for VA Loans in San Diego County: 

• One-Unit Limit:
 $1,006,250
(House/Condo/Townhouse)

• Two-Unit Limit:
 $1,288,200
(Duplex)

• Three-Unit Limit:
$1,557,150
(Triplex)

•Four-Unit Limit:
$1,935,150
(Fourplex)

VA loan limits in San Diego County are set to help veterans and active-duty service members purchase homes without needing a down payment. These limits vary by property type and provide eligible military with affordable financing options. Always check the latest home loan updates from the Department of Veterans Affairs or consult with a local lender specializing in VA loans to get the most accurate information for your budget and timeline.

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FHA Loan Limits San Diego County

FHA loans allows up to a 96.5% Loan-to-Value Ratio up to a loan amount of $1,006,250 in 2024. FHA loans are great for San Diego first time homebuyers, borrowers with lower credit scores, or purchasers with higher debt-to-income ratios. FHA also allows for larger loan amounts than conventional San Diego home loans. The FHA loan program accepts gift funds as a source of down payment from non-occupant co-borrowers.
The 2024 FHA loan limits in San Diego County set the maximum amount you can secure through an FHA loan for buying a house in San Diego. These limits vary depending on property type, but generally they often provide eligible borrowers with affordable financing options for their first home purchase.
The Federal conforming loan limit values for mortgages that finance properties in San Diego County increased during 2024, with limit values higher in our high-cost area.

2024 Fannie Mae & Freddie Mac Conforming Loan Limits for FHA Loans in San Diego County: 

• One-Unit Limit:
 $1,006,250
(House/Condo/Townhouse)

• Two-Unit Limit:
 $1,288,200
(Duplex)

• Three-Unit Limit:
$1,557,150
(Triplex)

•Four-Unit Limit:
$1,935,150
(Fourplex)

FHA loan limits are adjusted each year to reflect changes in housing prices and market conditions. FHA loans give first time homebuyers access to affordable home loan options with low down payment requirements and flexible eligibility criteria. Consult with a local lender who specializes in FHA loans or check the latest updates from the Federal Housing Administration (FHA) for the most accurate information tailored to your budget.

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USDA Loan Limits San Diego County

Homes financed with the United States Department of Agriculture (USDA) loan program must be located in a rural area. USDA loan limits in San Diego County set a maximum amount for how much mortgage you can borrow through the USDA Rural Development program to purchase homes located in designated rural areas. These locations are found in rustic unincorporated towns of San Diego’s rural backcountry where idyllic farms and homesteads thrive.

Eligibility for USDA loans in San Diego is based on factors like income and location. Follow the latest updates from the United States Department of Agriculture or consult with a local lender specializing in USDA loans to determine their eligibility and the applicable loan limits for their specific circumstances.

For more info on the California Housing Finance Agency (CalHFA) specific USDA program and details about rural home loans or farmstead mortgages in San Diego County, you can also contact: 

USDA Rural Development
430 G Street, Agency 4169
Davis, CA 95616
Phone: 530.792.5800
Email: ca.info@usda.gov

State Director’s Office: 530.792.5800
Business & Co-op Programs: 661.281.2736
Community Programs: 805.863.9928
Housing Department: 530.792.5830

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Can Loan-to-Value Be Greater than 100%?

Yes, it is possible that Loan-to-Value (LTV) ratio can exceed 100 percent. When an LTV ratio is greater than 100%, the borrower is considered underwater on the mortgage.
An LTV over 100% means you owe more on the home loan than your property is worth. This is considered negative equity. It’s also often referred to as being upside down or underwater on your mortgage. The higher your LTV, the harder it may be to qualify for a mortgage or refinance loan.
Being underwater, or upside-down, on your mortgage is when you owe more on the loan than the property is worth. This scenario can arise due to factors like declining property values, high loan balances, or a combo of both. Being underwater can pose significant challenges, as it limits your ability to sell the property without bringing cash to the table to cover the shortfall between the sale price and the outstanding loan balance. Additionally, it can impact your credit score, financial stability, and other options for refinancing or obtaining additional financing in the future.

What is Loan-to-Value for Refinance?

It’s important to note that not all mortgages are assumable, and the Sellers’ Lender’s full approval is required for the assumption to take place. Additionally, assumable mortgages are most prevalent with certain types of government-backed loans, such as FHA and VA loans. Conventional loans may vary on assumability.

What is Loan-to-Value for HELOC?

Assuming a conventional mortgage is less common compared to government-backed loans like FHA or VA mortgages. Many conventional mortgages often have a “due-on-sale” clause, which means the full loan balance becomes due if the property ownership changes.
However, some conventional mortgages might be assumable with the Sellers’ lender’s approval, depending on the loan agreement and the specific policies of that lending institution. It’s crucial to review the terms of the existing mortgage and consult with the Sellers’ lender to determine whether a loan assumption is allowed and under what conditions. If permitted, the assumption process would involve qualifying for the assumable mortgage, obtaining lender approval, and completing the transfer through a formal closing.

The Bottom Line on Loan-to-Value Ratio

If you’re interested in assumable mortgages, we recommend checking with lenders to ask about their specific home loans and whether they offer assumable options. Keep in mind that availability and terms of assumable mortgages can vary.
Whatever you decide, be sure to have a real estate attorney carefully look over any Agreements or Contracts before you sign. Also consult with your own financial professionals to make an informed decision based on your personal scenario.

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Reach out to us at 858.880.0195 or email portia.green@compass.com to learn more about home loan options that can help you save money on your mortgage.
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About The Author
Portia Green, REALTOR®

Portia’s clients all have a similar story. Most likely, you met her huddled around a tablet at the dinner table yet she feels like a friend. Her personable nature and easy going approach attract Sellers and Buyers alike, in what can be a stressful and emotionally charged event. A talented REALTOR® with 16 years experience, Portia is just as excited about real estate today as she was with her first transaction. She remains ever-committed to helping her clients find their place in the world and helping busy people navigate this crazy real estate market like a pro.

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