Loan-to-Value Ratio (LTV) Explained

Your loan-to-value ratio (LTV) is one of the most important numbers in mortgage lending. It measures how much you are borrowing relative to the property value. Lenders use LTV to assess risk, determine your rate, and decide whether you need mortgage insurance.

How to Calculate LTV

LTV = (Loan Amount / Property Value) x 100

Example: You buy a $400,000 home with a $360,000 loan. LTV = ($360,000 / $400,000) x 100 = 90%

Why LTV Matters

LTV and PMI

On conventional loans, PMI is required when LTV is above 80%. The higher your LTV, the more PMI costs. PMI can be removed once LTV reaches 80% (through payments or appreciation).

LTV and Refinancing

Most refinance programs require:

• •Conventional rate-and-term: 95% LTV max (some 97%)
• •Conventional cash-out: 80% LTV max
• •FHA rate-and-term: 97.75% LTV
• •FHA cash-out: 80% LTV
• •VA cash-out: 100% LTV (90% typical by lender)

How to Lower Your LTV

1. •Larger down payment — the most direct approach
2. •Buy a less expensive home — smaller loan relative to value
3. •Negotiate a lower price — reduces the loan needed
4. •Wait for appreciation — if home values rise, LTV drops automatically
5. •Make extra payments — reduces the loan balance

Combined LTV (CLTV)

If you have a second mortgage or HELOC, lenders look at CLTV — the combined balance of all loans divided by the property value. Most lenders cap CLTV at 85%.

Key Takeaways

• •LTV = loan amount / property value
• •LTV below 80% eliminates PMI and gets the best rates
• •Higher LTV means higher rates and mortgage insurance
• •Lower your LTV with a larger down payment or extra payments
• •Use our LTV Calculator to calculate yours