The percentage of the house that you should borrow, also known as the loan-to-value ratio (LTV), can vary depending on several factors, including the type of loan, your financial situation, and the lender’s requirements. Here are some general guidelines:
- Conventional Loans: For conventional loans, lenders typically prefer a maximum LTV ratio of 80%. This means you would borrow up to 80% of the property’s appraised value or purchase price, whichever is lower. In this case, you would need to provide a down payment of at least 20% of the property’s value.
- FHA Loans: FHA loans allow for higher LTV ratios, often up to 96.5%. This means you can borrow up to 96.5% of the property’s appraised value or purchase price. However, FHA loans require mortgage insurance premiums (MIP) to be paid for the life of the loan. A down payment of at least 3.5% is generally required for FHA loans.
- VA Loans: VA loans are available to eligible veterans, active-duty military personnel, and their spouses. These loans often allow for 100% financing, meaning no down payment is required. The VA guarantees a portion of the loan, which allows lenders to offer more favorable terms and higher LTV ratios.
- Hard Money Loans: Hard money lenders typically base their loan amounts on the after-repair value (ARV) of the property. The LTV ratio for hard money loans can range from 50% to 70% or higher, depending on the lender’s risk tolerance and the property’s condition. Borrowers may need to provide a significant down payment or equity in the property.
It’s important to note that borrowing a higher percentage of the house (higher LTV) generally means taking on more debt and potentially paying higher interest rates or additional fees. It’s advisable to carefully consider your financial situation, including your ability to make monthly mortgage payments and the impact on your cash flow, before deciding on the loan amount.
Additionally, lenders may have their own specific requirements and guidelines regarding LTV ratios. It’s recommended to consult with multiple lenders, mortgage brokers, or financial advisors to understand the options available to you and determine the appropriate loan amount based on your individual circumstances and financial goals.
