Loan‑to‑Value (LTV) is the loan amount divided by the property's value, expressed as a percentage — it shows how much of a home's value is financed versus how much is owner equity.
Buyers: LTV determines down‑payment needs, whether you pay mortgage insurance and often the interest rate you’ll be offered. Sellers/agents: LTV influences whether buyers can close (apps and financing contingencies) and affects negotiation strategies when appraisals come in low. Investors: LTV controls leverage, cash flow needs and exit strategy risks. Lenders: LTV is a core risk metric used for underwriting, pricing, loan limits and collateral decisions.
Formula: LTV = (Loan Amount ÷ Property Value) × 100. Example: $200,000 loan ÷ $250,000 value = 0.80 → 80% LTV.
For purchases lenders typically use the lesser of the purchase price or the appraised value to calculate LTV. For refinances they use the current appraised value (or recent valuation rules the lender follows). That rule protects lenders from financing above market value.
Low LTV example: Purchase $400,000, down payment $120,000 → loan $280,000. LTV = 280,000 ÷ 400,000 = 0.70 → 70% LTV.
Medium LTV example: Purchase $300,000, down payment $30,000 → loan $270,000. LTV = 270,000 ÷ 300,000 = 0.90 → 90% LTV.
High LTV example: Purchase $250,000, down payment $5,000 → loan $245,000. LTV = 245,000 ÷ 250,000 = 0.98 → 98% LTV.
If there's a second mortgage or HELOC, lenders look at combined balances. CLTV (combined loan‑to‑value) uses the total principal balances of all loans ÷ property value. For HELOCs lenders may use the current outstanding balance or the maximum available depending on whether the credit line is drawn at closing.
CLTV = (First mortgage balance + second mortgage/HELOC balance at application) ÷ property value. Used for underwriting when multiple liens exist, for purchase and many refinance scenarios.
HCLTV (Home Equity Combined LTV) often assumes the HELOC is fully drawn to its approved limit for qualifying; TLTV (Total LTV) may include the maximum available balance for all subordinate financing. Lenders use HCLTV/TLTV to model worst‑case exposure (especially for rate/fee tiers or when a HELOC could be drawn after closing).
| Use case | Primary ratio checked |
|---|---|
| Purchase with one loan | LTV (purchase price or lower of price/appraisal) |
| Purchase with second mortgage/assistance | CLTV |
| Rate tiering where HELOC exists | HCLTV/TLTV (max draw) |
| Cash‑out refinance | CLTV or TLTV (depends on program) |
Higher LTV = higher risk. Many conventional and agency guidelines set maximum allowable LTVs; exceeding those caps may lead to denial or require compensating factors (higher credit score, more reserves, lower DTI).
Lenders price loans in tiers by LTV bands (for example 80% or below, 80.01–90%, 90.01–97%). Higher LTV bands usually carry higher rates and fees. On top of agency rules, individual lenders may add overlays that tighten allowable LTVs for certain property types or credit profiles.
Higher LTV commonly triggers requirements for larger cash reserves, stricter DTI limits and additional documentation. It also affects conforming loan limits and whether a jumbo loan (with different LTV rules) is required.
Conventional conforming loans typically require PMI when LTV > 80% (i.e., less than 20% down). PMI costs and types (borrower‑paid, split‑premium, lender‑paid) vary and are priced by LTV and credit score.
FHA allows higher LTVs (up to 96.5% purchase). FHA requires upfront MIP and annual MIP; the duration of annual MIP depends on original LTV and loan term (e.g., loans with LTV ≤ 90% may have MIP removed after a period, others carry it for the life of the loan under older rules — check current HUD guidance).
VA and USDA loans often permit 100% LTV (no down payment). VA charges a funding fee (which varies by down payment, entitlement use, and military status); USDA has guarantee fees. Both programs have their own underwriting and residual income requirements even when LTV is high.
PMI on conventional loans can be canceled when LTV reaches 80% (borrower request) and must be automatically terminated at 78% (based on original amortization schedule) if payments are current. FHA MIP removal rules differ — many FHA loans retain MIP for the life of the loan unless originated under specific pre‑2013 rules or meeting current thresholds; check your mortgage servicer and HUD guidance for specifics.
Typical conforming conventional purchase: up to 97% LTV with certain first‑time buyer programs; standard conventional without PMi usually targets ≤80% LTV. Rate/term refinances often allow up to 95% (program dependent). Exceptions: automated underwriting or lender overlays can tighten or loosen these limits.
FHA purchase: up to 96.5% LTV. FHA streamline/refinance rules can allow high LTVs with limited documentation. VA purchase: typically up to 100% LTV. USDA: up to 100% LTV in eligible rural areas with income limits.
Cash‑out refinance limits are lower: conventional cash‑out commonly limited to 80% CLTV; FHA cash‑out historically up to 80% LTV; VA cash‑out (IRRRL vs native cash‑out) has its own caps. Example: $400,000 home, conventional cash‑out max 80% → max loan $320,000.
Down payment assistance (DPA) or second‑mortgage programs let buyers put little to no cash down, raising LTV but often structured as subordinate financing that factors into CLTV. These programs increase effective leverage while keeping initial cash to a minimum; they may require mortgage insurance or higher rates.
| Loan type | Common max LTV (purchase) |
|---|---|
| Conventional | 95–97% (purchase programs) / 80% without PMI |
| FHA | 96.5% |
| VA | 100% |
| USDA | 100% (eligible areas) |
If the appraisal is below purchase price lenders typically use the lower appraised value to calculate LTV, which raises the LTV and may push the loan over program limits or trigger PMI, higher rates or denial.
Sellers can provide additional comps, recent renovations documentation, or agree to split the gap. Agents should prepare clients for typical appraisal adjustments and, when appropriate, obtain a pre‑listing appraisal to reduce surprises.
The fastest way to lower LTV is a larger down payment or paying points/fees to the lender to reduce the financed amount. In negotiation, sellers sometimes offer credits that effectively reduce buyer’s loan need (check how that affects allowable LTV).
For existing mortgages, making extra principal payments reduces outstanding balance and LTV. Timing matters: a quick principal paydown followed by a new appraisal can lower CLTV for a refinance.
Targeted repairs, maintenance, and providing your appraiser with strong comparable sales and list of upgrades can increase appraised value. Be realistic — appraisers rely on comps and market data.
Second mortgages or piggyback loans can let buyers avoid PMI but increase total debt and CLTV; carefully compare costs, rates and risks before using subordinate financing to alter LTV dynamics.
Scenario: Buyer agrees to purchase a home for $350,000. They plan a $17,500 down payment (5%). Loan amount = 332,500. Appraisal comes in at $345,000.
Step‑by‑step LTV calculations:
Because the lender uses the appraised value, the buyer’s effective LTV is higher (96.4%). That may trigger PMI or require an FHA/VA product if the conventional lender won't accept >95% LTV. Interest rate tiers may be higher. Next steps: buyer can increase cash to lower loan amount, renegotiate price down to match appraisal, or switch to a loan product that allows higher LTV (with different costs).
Bringing an additional $8,500 reduces the loan to 324,000 → 324,000 ÷ 345,000 = 93.9% LTV, which may avoid certain restrictions and lower PMI costs; alternatively, lowering purchase price by negotiation to $345,000 would yield 96.3% using the same math but match the appraised value and simplify underwriting.
Lenders use the lesser of purchase price or appraised value for purchases. For refinances they use the current appraised value. For your own planning, calculate both so you know potential impacts.
Aim for ≤80% LTV to avoid PMI and access better rates. 70% or lower is stronger and can secure the most favorable pricing and underwriting flexibility.
They increase CLTV (combined LTV). Even if your first mortgage LTV is low, a high balance on a second lien raises combined exposure and can affect refinance or cash‑out eligibility.
Common trigger: conventional PMI typically required above 80% LTV. Interest rate tiers vary by lender; common breakpoints are 80%, 90%, 95–97%.
Yes: FHA, VA, USDA and certain down‑payment assistance programs allow high or 100% LTV. These programs have specific eligibility rules and often include upfront/ongoing fees.
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Suggested resources to link from the page (add actual URLs when publishing): an online LTV calculator; HUD/FHA guidelines; VA loan information; USDA Rural Development loan info; PMI removal guidance from Fannie Mae/Freddie Mac or your insurer.
Encourage readers to use an LTV calculator and to contact a lender or broker for prequalification to see exact program limits and pricing for their situation.
