Also written as:
LTV
The ratio of your loan amount to your home's appraised value, expressed as a percentage. Lenders use it to gauge risk — lower LTV means lower risk.
LTV — Loan-to-Value ratio — is one of the most important numbers in mortgage lending. It tells you (and your lender) what portion of the home's value is being financed versus paid for with cash.
If you buy a $400,000 home with $80,000 down, you're borrowing $320,000. Your LTV is $320,000 ÷ $400,000 = 80%. That's the magic number for most loan programs — at 80% LTV or lower, you typically avoid private mortgage insurance (PMI) on a conventional loan.
Higher LTV means higher risk for the lender (less of your own money in the deal), so they may require PMI, charge a higher rate, or both. Lower LTV gets you better terms.
Example
A $360,000 loan on a $400,000 home = 90% LTV. A $300,000 loan on the same home = 75% LTV. The 75% LTV loan usually qualifies for a lower rate and no PMI.
Formula
LTV = (Loan amount ÷ Home value) × 100
Also known as
LTV, loan to value
Source:
CFPB