Mortgage & Home Loans

What is LTV Ratio?

LTV ratio compares your loan amount to your home's value. It's calculated by dividing the loan amount by the lower of the appraised value or purchase price.

Lenders use LTV to set your rate, terms, and insurance requirements. Above 80%, you'll need PMI on a conventional loan. Higher LTV also means higher rates.

Your LTV drops as you pay down the principal and as your home appreciates. Track it carefully—federal law requires automatic PMI cancellation when LTV hits 78% of the original value.

Quick Facts

FormulaLoan Amount ÷ Property Appraised Value

PMI ThresholdRequired for conventional loans with LTV > 80%

Automatic PMI TerminationMandated at 78% LTV under HPA

Underwriting ClassPrimary indicator of default risk

PRACTICAL EXAMPLE

You buy a $400,000 home and get a $320,000 mortgage. Your LTV is 80%. Borrow $360,000 instead and your LTV hits 90%—and you'll pay PMI every month until it drops.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

Down PaymentThe cash you pay upfront when buying a home, which becomes your initial equity in the property.

PMIInsurance required on conventional loans when the down payment is less than 20%, protecting the lender against borrower default.

Home EquityThe current market value of a home minus any outstanding mortgage balances or liens on the property.

DTI RatioThe percentage of a borrower's gross monthly income that goes toward paying recurring monthly debt obligations.

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