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Loan-to-Value Ratio (LTV)
LTV is the ratio of your mortgage amount to the appraised value of the property, expressed as a percentage. An LTV above 80% typically requires PMI.
How It Works
Loan-to-value ratio (LTV) is calculated by dividing your loan amount by the property's appraised value. It's one of the most important metrics lenders use to assess risk. A lower LTV means more equity and less risk for the lender. If you buy a $400,000 home with $80,000 down (20%), your LTV is 80%. If you put $20,000 down (5%), your LTV is 95%. LTV above 80% typically requires private mortgage insurance (PMI) on conventional loans. LTV also affects your interest rate — lower LTV generally means better rates. Combined LTV (CLTV) includes all loans against the property, including second mortgages and HELOCs.
Key Facts
LTV = loan amount ÷ appraised property value × 100
LTV above 80% requires PMI on conventional loans
Lower LTV = better interest rates and loan terms
LTV decreases as you pay down principal and as home value appreciates
PMI can be cancelled at 80% LTV (by request) or 78% LTV (automatic)
Maximum LTV varies by loan type: Conventional 97%, FHA 96.5%, VA 100%
Example
Home value: $400,000. Loan amount: $360,000. LTV = $360,000 ÷ $400,000 = 90%. You'd need PMI. After paying down to $320,000 (or if the home appreciates to $450,000 making LTV = 71%), you can remove PMI.
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Frequently Asked Questions
80% or lower is ideal because it avoids PMI and qualifies for the best interest rates. However, many successful homebuyers start with higher LTVs (90-97%) and build equity over time through payments and appreciation.
Make a larger down payment, make extra mortgage payments to reduce your balance, or wait for your home to appreciate. You can also get a new appraisal if you believe your home has increased in value significantly.