The Loan-to-Value (LTV) ratio is a key financial metric in real estate that compares the loan amount to the property’s value, expressed as a percentage. Lenders use LTV to gauge risk: the higher the LTV, the greater the lender’s exposure if the borrower defaults.
Calculating LTV is straightforward. Divide your loan amount by the appraised or purchase price of the property, then multiply by 100. For example, a $200,000 loan on a $250,000 home yields an 80% LTV.
Every homebuyer and real estate investor—from first-time buyers to seasoned pros—monitors LTV. It determines mortgage options, interest rates, approval odds, insurance requirements and even refinancing eligibility.
Lenders set maximum LTV thresholds for different loan programs. Exceeding those limits can lead to higher rates, extra fees or outright denial.
Lower LTV typically unlocks better rates and fewer fees. As LTV climbs above 80%, lenders view the loan as riskier, often charging a rate premium.
Private Mortgage Insurance is usually required when LTV exceeds 80% on conventional loans. PMI protects lenders if you default, adding to your monthly payment until you reach sufficient equity.
Lenders balance risk (high LTV) with borrower equity (down payment). Greater equity reduces default risk and can open doors to preferred terms.
Use the lower of the purchase price or appraised value. The appraisal reflects current market conditions, ensuring LTV is based on an accurate valuation.
Include only the initial principal balance—not closing costs or future draws. For refinances, use the total new loan amount.
Example: Home price $300,000, down payment $30,000, loan amount $270,000. LTV = (270,000 ÷ 300,000) × 100% = 90%.
Most conventional loans cap LTV at 80% to avoid PMI. Borrowers with LTV above 80% usually pay PMI until they reach that threshold.
FHA loans allow up to 96.5% LTV with a minimum 3.5% down payment. Mortgage Insurance Premiums (MIP) apply regardless of down payment size.
VA and USDA programs permit 100% financing (0% down). Eligibility and property requirements vary; VA funding fees and USDA guarantee fees substitute for PMI.
Some lenders offer 97% LTV conventional or specialized 100% LTV products. These often require excellent credit, compensating factors and higher rates or fees.
CLTV adds all loan balances (first mortgage, HELOC, second mortgage) divided by property value. It shows total leverage.
LTC compares the loan to project costs—common in construction lending. Loan-to-Cash-Value is similar but uses cash-out refinances as the base value.
Home Equity Ratio measures your share of property value (equity ÷ value). LTV measures the lender’s share (loan ÷ value).
A bigger down payment directly reduces your LTV, unlocking better rates and avoiding PMI sooner.
Prepaying principal on construction draws or bridge loans can lower the financed amount—and thus your LTV—at closing.
Positive market movement can boost property value, automatically lowering your LTV without additional payments.
Once you reach a target LTV through repayments or appreciation, refinance to capture lower rates or drop mortgage insurance.
Emma finds her dream home at $300,000 and plans to put down 10%.
Down payment: $30,000; Loan amount: $270,000. LTV = (270,000 ÷ 300,000) × 100% = 90%.
At 90% LTV, Emma must pay PMI and may face a higher interest rate compared to an 80% LTV scenario.
If Emma increases her down payment to 20% ($60,000), her LTV drops to 80%, eliminating PMI and improving her interest rate.
Typically 80%. Some lender-paid PMI options let you exceed 80% but at a higher interest rate.
Origination LTV is fixed at closing. It fluctuates over time as you pay down principal or the property’s value changes.
LTV uses the lower of purchase price or appraised value. A low appraisal can increase your LTV and affect loan terms.
LTV covers a single loan; CLTV aggregates multiple loans against the same property.
Yes. Refinance when you have enough equity (LTV at or below target). Steps include application, appraisal and closing—similar to your original mortgage.
Lower LTV signals less risk, leading to lower rates, reduced fees and no mortgage insurance requirements.
97% is available via some conventional programs with PMI. VA and USDA loans offer 100% financing but include guarantee fees or funding fees.
LTV measures your loan against property value, influencing approval, rates and insurance. Calculate it as (Loan ÷ Value) × 100%.
1. Calculate your current LTV. 2. Increase down payment or pay down principal. 3. Compare loan programs and target one that matches your LTV.
Explore more terms in our mortgage glossary and use an online LTV calculator to plan your financing strategy.
