Loan To Value Ratio: Understanding How Much You Can Borrow

When approaching lenders about the the potential low doc home loans available to you, there will be a lot of things to discuss. With the wide range of different aspects to cover, it’s understandable to be slightly overwhelmed by the whole process. However, taking it one step at a time and learning the in’s and out’s of the mortgage market lingo will help you find the right home loan product. 

One thing that will come up during the searching process will be the loan to value ratio (LVR) of a mortgage. Understanding is crucial to making an informed financial decision, especially when it comes such a long term commitment as a home loan.

What is LVR?

Basically, LVR is the how much of the property’s overall value your lender will be providing you through the mortgage. As the LVR on a home loan gets higher, so does the lender’s risk – which could be a source of hesitation for some lenders.

The generally accepted LVR for most home loans is around 80 per cent, with your deposit making up the remaining 20 per cent of the real estate value. When it comes to low doc home loans, a risky mortgage can sometimes have a LVR of around 60 per cent, given the inherent additional risk that comes with this type of mortgage. However, Redrock specialise in low doc home loans and can work with an LVR as high as 85 per cent.

How does LVR affect your application?

When it comes to giving out a home loan, it’s up to the discretion of the lender. Therefore, if they feel that their risk is uncomfortably high, a number of things could happen. For one, they could just refuse to allow the loan to go through until you manage to save up a larger deposit.

On the other hand, the increased risk could lead to higher interest rates or stricter mortgage parameters, in order to make up for the risk. Speaking with your lender about these factors is the best way to gauge where you stand in the mortgage application process.