Loan-to-Value Ratio (LTV)
Loan-to-value ratio (LTV) is the percentage of a home's appraised value that you're borrowing. It's calculated by dividing the loan amount by the appraised value. An 80% LTV on a $500,000 home means you're borrowing $400,000. LTV is one of the most important factors in mortgage pricing — lower LTV means less risk for the lender and typically a lower rate for you.
LTV and down payment are two sides of the same coin. A 20% down payment results in an 80% LTV; a 3.5% FHA down payment results in a 96.5% LTV. Most lenders charge higher rates for higher LTVs due to the increased risk of loss if the borrower defaults and the home must be sold. The pricing tiers typically shift at 80%, 75%, 70%, 65%, and 60% LTV.
LTV also determines whether you need private mortgage insurance (PMI) on conventional loans — required above 80% LTV. You can request PMI cancellation once you reach 80% LTV through payments, and the lender must automatically cancel it at 78% LTV under the Homeowners Protection Act. For FHA loans, LTV determines whether mortgage insurance lasts 11 years (if you started at 90% LTV or below) or for the life of the loan (above 90% LTV).
Combined LTV (CLTV) is used when there's more than one lien — it adds your first mortgage plus any HELOCs or second mortgages and divides by the property value. Lenders typically limit CLTV to 85–90% for home equity products.
Key Takeaway
Loan-to-value ratio (LTV) is the percentage of a home's appraised value that you're borrowing. It's calculated by dividing the loan amount by the appraised value. An 80% LTV on a $500,000 home means you're borrowing $400,000. LTV is one of the most important factors in mortgage pricing — lower LTV means less risk for the lender and typically a lower rate for you.
Related Terms
Frequently Asked Questions
80% or below is ideal — it avoids PMI and qualifies for the best rates. Below 75% or 70% typically earns additional pricing improvements.
Divide your loan amount by the home's appraised value and multiply by 100. Example: $320,000 loan ÷ $400,000 value = 80% LTV.
Yes. As you pay down the principal and/or home values rise, your LTV decreases and your equity increases. A lower LTV may allow you to cancel PMI or access better refinance terms.
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