CLTV Ratio – Combined Loan-To-Value Ratio

CLTV Ratio:  What is Combined Loan-To-Value Ratio?

cltvThe combined loan-to-value (CLTV Ratio) takes the sum of all secured loans on a property and divides it by the total value of that property. Lenders use the CLTV ratio to determine a prospective home buyer’s risk of default when more than one loan is used.  In general, lenders are willing to lend at CLTV ratios of 80% to borrowers with high credit ratings. The CLTV ratio is different from the simple loan to value (LTV).  This is because the LTV only includes the first or primary mortgage in its calculation.

The loan to value (LTV) ratio of a mortgage is the ratio of the mortgage balance to the value of the property.  The combined loan to value (CLTV) is the same calculation made for the sum of all loans taken out on the property. LTV and CLTV ratios are both used in mortgage lending to determine whether a borrower is qualified to obtain a home loan.

The Difference Between LTV and CLTV Ratio

Loan to value is the ratio of your first mortgage balance to your home value.  It takes the value of the first mortgage and divides it by the value of the property.  The combined loan to value ratio uses the same principle.  However, with all your other home loans added to the calculation. If you have any second mortgages, home equity loans or lines of credit that depend on your property as collateral, those balances will be factored into the CLTV. The CLTV ratio for your mortgage will always be equal to or greater than your LTV ratio. As a result, mortgage lenders have higher maximum limits for CLTV compared to the LTV ratio.

Loan-to-value (LTV) and CLTV are two of the most common ratios used during the mortgage underwriting process. Most lenders impose maximums on both values, above which the prospective borrower is not eligible for a loan.  The LTV ratio considers only the primary mortgage balance.

Most lenders impose LTV maximums of 80%.  This is because Fannie Mae and Freddie Mac do not purchase mortgages with higher LTV ratios. Borrowers with good credit profiles can get around this requirement, but must pay private mortgage insurance (PMI).  As long as their primary loan balance is greater than 80% of the home’s value. PMI protects the lender from losses when a home’s value falls below the loan balance.

CLTV Ratio Formula and Calculation 

The formula for CLTV (the cumulative, or combined loan to value ratio) is:
CLTV = Total Combined Loan Amounts / Total Property Value

To calculate the combined loan-to-value ratio, divide the total principal balances of all loans by the property’s purchase price or fair market value. The CLTV ratio is determined by dividing the sum of the items listed below by the lesser of the property’s sales price or the appraised value of the property.

  • First Mortgage – The original loan amount of the first mortgage
  • Home Equity Lines of Credit – The outstanding principal balance of a home equity line of credit (HELOC)
  • Second and Third Mortgages – The unpaid principal balance of all closed-end subordinate financing, such as a second or third mortgage.  With a closed-end loan, a borrower draws down all funds on day one and may not make any payment plan changes or access any paid-down principal once the loan is closed.

How to Calculate LTV and CLTV Ratio

Calculating LTV has much to do with the down payment on your mortgage loan. Since your LTV is equal to the borrowed amount divided by the total home price, it’s the exact opposite of the down payment. For instance, a $500,000 home bought with a down payment of 20% requires a mortgage loan of $400,000. Dividing that loan amount by the value ($400,000/$500,000)  gives an LTV ratio of 80%.  This is the portion of your home value not covered by the 20% down payment.

Calculating the CLTV Ratio

You can figure out the combined loan to value ratio in a similar way. According to Fannie Mae’s guidelines on CLTV calculation for conventional mortgages, you must add the loan amount of your first mortgage to the amounts you have outstanding in your secondary mortgages, home equity loans, and home equity lines of credit (HELOCs). For HELOCs, the CLTV takes into account the amount you have drawn so far on the line of credit. Once you add these numbers, you must divide the total by the lesser of either the sales price of your home or its current appraised value.

CLTV Calculation Example

As an example, consider a $500,000 home. Instead of a single mortgage of $400,000, let’s say there is a first mortgage of $290,000, the second mortgage of $110,000, and a HELOC that has been drawn down $25,000 so far. Since the same home is being used to guarantee all three, you need to add outstanding balances together and divide by The current value of the home.  ($290,000 + $110,000 + $25,000)/$500,000 gives a CLTV ratio of 85%.

If the appraised value of your home decreases after you purchase it, your CLTV would use that smaller number and thus go up. However, this will only matter if you decide to refinance at a later date.  Lenders and appraisers only get involved when the borrower applies for a new mortgage arrangement.

LTV and CLTV Ratio Summary

  • CLTV is similar to LTV – But the CLTV includes all mortgages or liens and not just the first mortgage.
  • Lenders consider the CLTV ratio to qualify prospective borrowers.  It helps to determine whether a home buyer can afford to purchase a home.
  • More attention is paid now – The real estate bubble of 2008-2009 underscored the relevance of keeping an eye on the CLTV ratio.

What the CLTV Ratio Shows

The combined loan to value (CLTV) ratio is a calculation used by mortgage and lending professionals to determine the total percentage of a homeowner’s property that is encumbered by debt obligations. Lenders use the CLTV ratio along with a handful of other calculations, such as the debt-to-income ratio and the standard loan to value (LTV) ratio, to assess the risk of extending a loan to a borrower.

Many economists attribute relaxed CLTV standards to the foreclosure crisis that plagued the United States during the late 2000s. Beginning in the 1990s and especially during the early and mid-2000s, homebuyers frequently took out second mortgages at the time of purchase in lieu of making down payments. Lenders eager not to lose these customers’ business to competitors agreed to such terms despite the increased risk.

CLTV Ratio and the 2008 Housing Bubble

Prior to the real estate bubble that expanded from the late 1990s to the mid-2000s, the standard practice was for homebuyers to make down payments totaling at least 20% of the purchase price. Most lenders kept customers within these parameters by capping LTV at 80%.

When the bubble began to heat up, many of these same companies took steps to allow customers to get around putting 20% down. Some lenders raised LTV caps or did away with them completely, offering mortgages with 5% down payments or less, while others kept LTV requirements in place but raised CLTV caps, often to 100%. This maneuver enabled customers to take out second mortgages to finance their 20% down payments. The foreclosure spike beginning in 2008 underscored why CLTV is important. Having skin in the game, such as a $100,000 initial cash outlay for a $500,000 house, provides a homeowner with a powerful incentive to keep up his mortgage payments. If the bank forecloses, he not only loses his home but also the pile of cash he paid to close. Requiring equity in the property also insulates lenders from a dip in real estate prices. If a property is valued at $500,000 and the total liens add up to $400,000, the property can lose up to 20% of its value without any lien holders receiving a short payment at a foreclosure auction. (Source:

Why the CLTV Ratio Matters

Some home buyers choose to lower their down payment by receiving multiple mortgages on a property.  This results in a lower loan-to-value ratio for the primary mortgage. Also because of the lower LTV ratio, many home buyers successfully avoid private mortgage insurance (PMI). Whether it is better to obtain a second mortgage or incur the cost of PMI is a matter of opinion.  This is because the second mortgagor assumes more risk.  As a result, the interest rate on a second mortgage is typically higher than the interest rate on a first mortgage. It is advisable that consumers consider the advantages and disadvantages of accepting multiple loans on one property. Exercising due diligence will help ensure that what is chosen is the best option for the given circumstances.

Lenders can better evaluate applicants 

Mortgage lenders use CLTV to evaluate situations in which an applicant has more than one mortgage on their property. Since LTV only describes your first mortgage, lenders need CLTV to calculate the risk for a borrower with multiple liens on his or her home. This is because some people choose to reduce their down payment by funding it with money from a second mortgage. This results in a lower LTV on the first mortgage, which is needed to avoid the added expense of private mortgage insurance. If you plan on applying for more than one mortgage, lenders will look at both the LTV and CLTV of your planned home purchase.

Note that certain home loan products at Fannie Mae or Freddie Mac also look at HCLTV, which is the home equity combined loan to value ratio. This includes the full amount of your HELOCs rather than just the amount that you have withdrawn. As a result, your HCLTV ratio is always higher than your CLTV —and lenders often consider just the highest value among LTV, CLTV and HCLTV. If you use a HELOC to help finance your home purchase, then you may find it somewhat harder to get approved for a refinance later on. (Source:

What is Private Mortgage Insurance (PMI)?

Private mortgage insurance is also called PMI.  It is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.  PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.

How much does PMI cost?

The average annual PMI premium typically ranges from .55 percent to 2.25 percent of the original loan amount each year.  This is according to data from Ginnie Mae and the Urban Institute. With these rates, it means that for a $200,000 mortgage, your PMI can cost between $1,100 and $4,500 each year, or around $91.66 to $375 per month.

Your credit score and combined-loan-to-value (CLTV) ratio have a big influence on your PMI mortgage premiums. For example, the higher your credit score, the lower your PMI rate can be. However, the higher your CLTV, the higher you PMI bill will likely be.

How do I make PMI payments?

PMI payment options differ by lenders, but typically borrowers can opt to make a lump sum payment each year.  This is known as single-payment mortgage insurance. Once you make this payment, you may not be able to get a refund of your premium if you decide to refinance or move homes.

More commonly, borrowers roll the full premium into their monthly mortgage payment. You can usually find a full breakdown in your loan estimate and closing disclosure documents.

Up Next:  Derogatory Marks on Credit Report – Steps You Can Take Now

What Does “Derogatory Marks on Credit Report” Mean?  If you’ve experienced financial misfortune, from late bills to bankruptcy, that negative information can appear on your credit reports as derogatory marks. It may stay there for several years, but there are a few ways you can address it.  You can dispute the mark if it’s an error, take steps to improve your credit, or wait out the clock.  A derogatory public record or collection filed can impact your credit report for the better part of a decade.  But, there are still ways you can work to improve your credit.

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