What Is Loan-to-Value Ratio (LTV)?
Loan-to-Value Ratio (LTV): Your loan amount divided by the home's price or appraised value, whichever is lower.
Also called: LTV
Loan-to-value ratio (LTV) compares the size of your loan to the home's value. On a purchase, lenders use the lower of the purchase price and the appraised value.
How it's calculated
LTV = loan amount ÷ value. A $360,000 loan on a $400,000 home is 90% LTV, the same as 10% down.
Why it matters
- Pricing: lower LTV usually means a better rate
- Mortgage insurance: conventional loans require PMI above 80% LTV
- Eligibility: each program has a maximum LTV
- Cash-out: cash-out refinances are capped, usually at 80% LTV (90% for VA)
Example of a low appraisal
You offer $400,000 with $40,000 down. The home appraises at $380,000. Your LTV becomes $360,000 ÷ $380,000 = 94.7%, which can change your pricing and mortgage insurance unless the price or loan changes.