Loan to Value Ratio - Why It Is Important

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Loan to Value Ratio - Why It Is Important
These days many renters are taking advantage of the present low level of interest rates to get into a home of their own. In addition, many current homeowners are taking advantage of those same low interest rates to refinance their home mortgage loans at more favorable interest rates.

Therefore, whether you are a current renter moving into a home of your own or a long time homeowner seeking a lower interest rate, it is important to understand one of the most important financial formulas - the loan to value ratio.

The easiest way to understand the loan to value ratio is that it represents the relationship between the amount of the outstanding mortgage as compared to the current value of the home. Since housing prices have been rising very fast in many areas of the country, many current homeowners have built up quite a bit of equity in their homes.

Many homeowners, for instance, find themselves in the happy circumstance of owning a home that is worth substantially more than they paid for it, or substantially more than they owe on it. This means that the homeowner has equity that can be used to borrow additional funds, refinance the mortgage or even shorten the term of the mortgage loan.

It is fairly easy to calculate the loan to mortgage ratio. It simply requires knowing approximately how much your home is worth, the amount of the outstanding mortgage and the amount of the original down payment. For our exercise we will use a home value of $150,000. The approximate value of your home can be estimated by looking at what similar homes in your neighborhood have sold for.

When calculating the loan to value ratio, the first step is to take the original purchase price of the home, in this case $150,000 and subtract out the amount of the original down payment. For this exercise we will use a down payment of $20,000.

The loan to value ratio is calculated by subtracting the $20,000 down payment from the purchase price of $150,000. In this case the resulting number is $130,000, which represents the $150,000 purchase price minus the $20,000 down payment. Dividing the $130,000 loan amount by the $150,000 purchase price gives us a loan to value ratio of 0.87, or 87%.

It is important to know your loan to value ratio, since this number will be important to lenders any time you apply for a loan.

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US Department of Education Loans - Secrets Revealed

If you have heard about any kind of Federal financial aid for students, you are already familiar with US Department of Education loans. The US Department of Education handles all government aid for defraying the cost of attending college in America, from grants to loans. The first thing that you will need to do to apply for US Department of Education loans is to fill out a FAFSA, or Free Application for Federal Student Aid form. FAFSA forms compare the amount of money required to attend a specific college to the amount of money that can be expected to be paid by the family of the attendee. Any difference is the amount of money eligible for student aid.

Qualifying for US Department of Education Loans US Department of Education loans have specific qualifications that an applicant must meet to be eligible. The qualifications include US Citizenship (some non-citizens with social security numbers are also eligible), financial need, possession of a valid Social Security Number, and proof of eligibility for higher education in the form of a high school diploma, General Education Development (GED) certificate, or similar. Furthermore, applicants for US Department of Education loans must be in good financial, academic, and legal standing. In other words, they must be registered with the Selective Service if required, they must not have defaulted on a student loan in the past, they can have no record of conviction on charges of sales or possession of drugs, and they must maintain a certain grade point average (GPA) to continue to receive student loans from the Department of Education.

Types of US Department of Education Loans There are three main possibilities when considering US Department of Education loans: grants, which are monetary gifts, student loans, and work-study programs where the money for education is earned. Only in the case of student loans does the money need to be repaid. Most federal grants are based solely on financial need, and some are given on a first-come-first-served basis, so it is important to apply as early as possible.

Work-Study programs are not technically US Department of Education loans, but they are a federally mandated way to receive financial aid to attend college. A number of work-study hours are specified as part of the financial aid package.

These usually involve jobs working with non-profit companies or on campus, and pay a modest salary. The money earned can be used for college tuition. True US Department of Education loans include the Perkins Loan, the Stafford Loan, and the PLUS loan for parents.

Perkins loans have a particularly low interest rate and can be paid back over a time period of as long as 10 years. There are a limited number of Perkins Loans available to each school every year. The Stafford Loan has a higher interest rate than the Perkins loan, and doesn't necessarily offer a grace period after graduation. However, there are more Stafford loans offered by the US Department of Education every year. Stafford loans are even available to students who don't have a pressing financial need. Stafford loans may be paid off over a period of as long as thirty years.

PLUS loans are the final type of US Department of Education loans. They are offered to parents of undergraduates, as opposed to the students themselves. Payments on Federal PLUS loans start two months after the money is received, and can be paid off over a ten-year term.

Mark Kessler's website offers a comprehensive free resource of college financial aid. Don't even think about paying for school until you've read this about Consolidating Student Loans, as well as Alternative Student Loans, ACS, Bad Credit, and Federal financial aid for students, including a variety student loan articles.


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Loan to Value Ratio - Why It Is Important
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