Investing in Short Sales

Short sales are purchases negotiated with the owner and lender(s) before foreclosure. Typically the purchase price negotiated is less than the balance owed on the property.

For investors, short sales present an opportunity to buy real estate below market value and help borrowers avoid foreclosure.

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How Loan-To-Value Ratio Affects the Cost of a Mortgage

Loan-To-Value Ratio is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. 

Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.

Calculated as: Mortgage amount divided by the Appraised Value

For example, Jim needs to borrow $92,500 to purchase a $100,000 property. The LTV ratio yields a value of about 92.5%. Since bankers usually require a ratio at a maximum of 75% for a mortgage to be approved, it may prove difficult for Jim to get a mortgage.

Similar to other lending risk assessment ratios, the LTV ratio is not comprehensive enough to be used as the only criteria in assessing mortgages.