United States
Hong KongLoan-to-value and combined LTV
Loan-to-value is the loan amount divided by the lesser of the purchase price and the appraised value. Combined loan-to-value uses every lien on the property over the same denominator.
One formula, one rule about the denominator, and one place nearly everyone slips.
The formula
Loan amount divided by the lesser of the purchase price and the appraised value.
The lesser. Not the price, not the appraisal, and not whichever gives the friendlier answer.
Two worked cases
A home bought for 300,000 dollars and appraised at 290,000 dollars uses 290,000 as the denominator. The appraisal came in low and the borrower has to cover the gap.
The same home appraised at 310,000 dollars still uses 300,000. A high appraisal does not let the borrower borrow more against a purchase.
A question gives you a price and a differing appraisal specifically to see which one you reach for. If both numbers appear in the stem, the rule is being tested.
Combined loan-to-value
Every lien on the property, over the same denominator. A first mortgage plus a second, plus a home equity line, all counted together.
A borrower can have a comfortable LTV on the first lien and an uncomfortable CLTV once the second is added, and questions are built exactly there.
The thresholds that hang off it
| Threshold | What happens |
|---|---|
| 80 percent | Borrower may request cancellation of private mortgage insurance |
| 78 percent | Automatic termination under the Homeowners Protection Act |
| Above 80 percent | Mortgage insurance generally required on a conventional loan |
Two numbers, two mechanisms. One is on request and one is automatic, and the difference between them is what gets asked.
Common questions
How is loan-to-value calculated?
Loan amount divided by the lesser of the purchase price and the appraised value.
What if the appraisal is higher than the price?
The price is still used, because it is the lesser of the two.
What is combined loan-to-value?
All liens on the property divided by the lesser of price and appraised value.
When can PMI be canceled?
A borrower may request cancellation at 80 percent LTV, and it terminates automatically at 78 percent.
Why do questions give both a price and an appraisal?
To test whether you use the lesser of the two. If both appear, the rule is being examined.