LTV, CLTV and HCLTV: Three Views of Borrowing Against a Home

Start by identifying the value and the debt

Loan-to-value, or LTV, expresses a loan amount as a share of the property value used for underwriting. Divide the relevant balance by that value and express it as a percentage. The important work is choosing the correct inputs.

For an ordinary purchase, lenders commonly use the lower of purchase price or appraised value. Refinance valuation and special transactions follow applicable program rules. An online estimate is not automatically the value a lender will accept. Fannie Mae: LTV calculations.

More than one lien requires more than one ratio

Fannie Mae distinguishes the drawn balance in CLTV from the full line amount in HCLTV. An undrawn credit line can therefore still affect underwriting. Ask the lender which measures its program uses and how it treats any line being closed or reduced.

Why the ratios matter

The ratio can affect program eligibility, pricing and mortgage-insurance requirements. It also helps show how much borrowing remains against the property. Allowed ratios depend on the program, purpose, occupancy, unit count and other factors. A purchase maximum is not automatically a cash-out or investment-property maximum.

For conventional financing, a smaller down payment can result in PMI. FHA insurance follows different rules. Reaching a particular estimate of equity later does not itself cancel insurance; the servicer must apply the relevant cancellation or termination requirements. Use the mortgage-insurance guide for that separate review.

Watch for mismatched inputs

• Do not omit an existing second mortgage from combined borrowing.
• Do not substitute a HELOC's available credit for its drawn balance in every ratio.
• Do not assume the seller's asking price establishes the valuation.
• Check whether financed costs increase the proposed loan amount.
• Ask how an appraisal below the contract price changes cash needed.

A lender's rounding and delivery rules can also matter near an eligibility boundary. Let the lender confirm the official ratio rather than rounding a personal worksheet in the direction you prefer.

Keep equity and available cash separate

Equity can change with principal payments and property value. It is not all withdrawable cash. Available borrowing also depends on repayment qualification, costs, program limits and existing liens.

Bring recent statements for every mortgage and credit line, the proposed transaction and the property information to ECHL. We can help organize the comparison while the lender confirms accepted value and permitted borrowing.