What Is Loan-to-Value (LTV) Ratio and Why Does It Matter for Your Mortgage?
Your loan-to-value ratio determines whether you'll pay PMI, what interest rate you qualify for, and how much you can borrow. Here's how it's calculated and how to improve it.
Loan-to-value (LTV) ratio compares the size of your mortgage to the appraised value of the home. It's one of the first numbers a lender calculates, and it directly affects your interest rate, whether you'll pay for mortgage insurance, and how much you're approved to borrow.
How to Calculate LTV
LTV = Loan Amount ÷ Appraised Home Value. If you're buying a $400,000 home with a $360,000 loan (10% down), your LTV is 90%. The lower your LTV, the less risk the lender is taking on, and the better your terms.
Why LTV Matters
- Above 80% LTV on a conventional loan usually requires private mortgage insurance (PMI)
- Lower LTV generally means a lower interest rate
- Lenders cap how much they'll lend based on maximum LTV thresholds for each loan program
- Refinancing and home equity products also use LTV to determine how much you can borrow against your home
Typical Maximum LTV by Loan Type
- Conventional loan: up to 97% LTV (3% down) for qualified first-time buyers
- FHA loan: up to 96.5% LTV (3.5% down)
- VA loan: up to 100% LTV (0% down) for eligible veterans
- Home equity/HELOC: usually capped so your combined LTV (first mortgage + new loan) stays under 80-85%
💡 Getting to 80% LTV — through a bigger down payment or by paying down principal over time — is the key threshold to eliminate PMI on a conventional loan, which can save hundreds of dollars a month.
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