There’s a vital factor that home buyers need to be aware of when they apply for a home loan, and that is the loan-to-value ratio.
So says Rudi Botha, CEO of BetterBond, who notes that this ratio - known in the home loan sector as the LTV – can make all the difference when banks are deciding whether to approve or refuse a loan application.
“The LTV is basically the requested loan amount expressed as a percentage of the purchase price – or as a percentage of the appraised value of the property, if this is different from the purchase price.”
For example, he says, if the property costs R2m and the buyer is putting down a R200 000 (10%) deposit, the loan required would be R1,8m, so the LTV would usually be 90%.
“However, if it turns out that the bank’s evaluation of the property’s value is only R1,9m, the loan of R1,8m would actually equate to an LTV of 95% as far as the bank is concerned, and that could actually result in the application being turned down.