LTV (Loan-to-Value Ratio)
Definition
The ratio of a loan amount to the appraised value of the property securing it. An 80% LTV means you're borrowing 80% of the property's value and putting 20% down.
Loan-to-Value ratio is a critical metric in mortgage lending that measures how much you're borrowing relative to the property's value. It's calculated as: Loan Amount / Appraised Property Value x 100. If you buy a $400,000 home with a $320,000 mortgage, your LTV is 80%.
LTV directly impacts your mortgage terms. Lower LTV (more equity/larger down payment) means: better interest rates, no requirement for private mortgage insurance (PMI), and easier qualification. Most conventional loans require PMI for LTV above 80%. FHA loans allow LTV up to 96.5% (3.5% down) but require mortgage insurance for the life of the loan.
LTV matters beyond initial purchase. As your home appreciates or you pay down the mortgage, your LTV decreases. When LTV drops below 80%, you can request cancellation of PMI on conventional loans. When LTV drops below 78%, PMI must be automatically removed.
For real estate investors, LTV affects borrowing capacity and return on equity. Higher LTV means more leverage — amplifying both gains and losses. Investment property loans typically require lower LTV (75-80%) than primary residence loans, and carry slightly higher interest rates.
LTV is also monitored by lenders throughout the life of a loan. If property values decline significantly (as in 2008), homeowners can end up "underwater" — owing more than the property is worth (LTV above 100%), which limits refinancing options and creates strategic default risk.
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Related Terms
Frequently Asked Questions
What LTV do I need for the best mortgage rates?
LTV of 80% or lower (20%+ down payment) typically qualifies for the best rates and avoids PMI. Some lenders offer even better rates at 60% or lower LTV. The improvement from 80% to 60% is usually modest, so most borrowers target 80%.
What happens if my LTV goes above 100%?
You're 'underwater' — you owe more than your home is worth. This limits your ability to refinance or sell without bringing cash to closing. It doesn't trigger immediate consequences if you continue making payments, but it reduces your financial flexibility.