# LTV calculation

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• #48032
frankysmom
Member

Hello

I’d like to use a grant with NACA but one of their stipulations seems like it may be an issue. Under its mortgage requirementsit lists, “maximum underwriting ratio” at 97% [ Also, maximum combined loan to value at 115%]

Would the 1% in MRF plus 2% buy down money then make the LTV 97% instead of 100. Exude the ignorance, I am trying to see how I can make this grant work with NACA.

#48055
TTrumble
Member

Hello frankysmom,

Your MRF and interest rate buy down funds (under seven points) do not affect the LTV as they do nothing to reduce the principal of the loan.

For reference, LTV is defined as “The ratio of the fair market value of an asset to the value of the loan that will finance the purchase.” Therefore if the house appraises for at least 3% above the loan amount, you automatically have equity in the home upon closing and meet the requirement for the grant.

Otherwise, you would have to have buy down funds of at least ten points to reach the 97% LTV, since the first seven points go to interest rate buy down and any funds above that are used for principal reduction.

Tim Trumble
Online Operations, NACA
ttrumble@naca.com

#48111
frankysmom
Member

Oh boy, For the Amount of house we are looking to buy, each point would be at least 7K.

Does NACA prohibit an out right down payment? Or Is the only way to bring down the loan amount is to buy down interest first to the max THEN anything in excess would go to principal?

#48128
TTrumble
Member

Hello frankysmom,

So just to be clear, you are looking for a property around \$700,000, correct? (Obviously a multi-family at that price.)

You ALWAYS want to buy down the interest rate instead of make a traditional down payment whenever possible. The interest rate buy down will save you three times the money over the life of the loan compared to the same amount of money used for a down payment. You can buy down the rate in increments of as little as 0.125% (one-quarter point). Only after the buyer contributes the seven point maximum set under the Home Owner’s Equity Protection Act (HOEPA) will any additional buy down funds the buyer contributes go toward principal reduction/down payment.

Tim Trumble
Online Operations, NACA
ttrumble@naca.com

#48130
frankysmom
Member

Thank you, Tim. I understand the value of buying down the interest. It is just that the grant I would like limits the LTV at 97%

Thanks.

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