What you need to know for a home loan - LVR
LVR is a term that is often used in the house purchasing process. But does anyone actually know what it means?
What's the key learning?
- LVR = Loan to value ratio
- It is the percentage of money you borrow for a home loan compared to the value of the property
LVR = Loan to Value ratio.
If your eyes just glazed over when you read the word ratio, never fear, Mrs Anderson’s math class is finally coming in handy.
LVR is the amount you are borrowing compared to the value of the property you want to buy. Put this as a percentage and bob’s your uncle - you’ve got your LVR. The remainder is your deposit.
The reason you need to care about the ol’ LVR is because this is what lenders commonly use to assess the risk of a home loan.
Let's run the numbers:
Let's say you've squeezed every penny to save up a $100,000 deposit. Is that enough to take out a loan? Well, let's check:
House price: $500,000,
Borrowing amount: $400,000
Now we just do the simple simple maths. $400,000 / $500,000 = 80% LVR.
Once the LVR exceeds 80 per cent, it’s generally a little risky for the lender, so they may ask you to take out Lender’s Mortgage Insurance.