The ratio of your mortgage amount to the appraised value of the property, expressed as a percentage. If you buy a $400,000 home with $80,000 down, your loan is $320,000 and your LTV is 80%. LTV is a key factor in mortgage approval: higher LTV means more risk for the lender. An LTV above 80% on a conventional loan triggers private mortgage insurance (PMI).
Why It Matters
Loan-to-value (LTV) ratio is your loan amount divided by the property's appraised value, expressed as a percentage. If you buy a $400,000 home with $40,000 down (10%), your LTV is 90%. LTV is the primary metric lenders use to assess risk — higher LTV means more risk, which means higher rates, PMI requirements, and stricter qualification standards.
The magic number is 80% LTV (20% equity). Below 80% LTV: no PMI required, access to the best rates, easier qualification. Above 80%: PMI required on conventional loans (0.5-1.5% of loan annually), slightly higher rates, and limits on some loan products. For cash-out refinances, most lenders cap at 80% LTV — if your home is worth $400,000 and you owe $250,000, you can borrow up to $70,000 ($400K × 80% - $250K).
Real-World Example
Home value: $400,000. Loan: $360,000. LTV: 90%. PMI at 0.7%: $210/month ($2,520/year). After 5 years of payments and 3% annual appreciation: home value ~$464,000, balance ~$338,000. New LTV: 73%. PMI can be removed — saving $210/month going forward.
Pro Tip
If your home has appreciated significantly, request a reappraisal from your lender. A higher appraised value lowers your LTV and may let you drop PMI years ahead of schedule.