Quick Answer
Your loan-to-value ratio (LTV) is your loan amount divided by your home's appraised value, shown as a percentage. A lower LTV generally means a stronger position with a lender and can help you avoid PMI on a conventional loan.
- What it measures
- Loan amount vs. home's appraised value
- Lower LTV means
- Less risk to the lender
- Common PMI trigger
- Above roughly 80% LTV on conventional loans
- Ways to lower it
- Bigger down payment or added equity over time
How Lenders Use Your LTV
Because a mortgage is secured by the home itself, lenders watch how much equity cushion exists in case they ever had to resell the property. A lower LTV, built with a larger down payment, generally supports better loan terms and more flexibility on interest rate and program options.
LTV works alongside your debt-to-income ratio as one of the core numbers underwriters review, but it focuses on the property rather than your income.
LTV and Mortgage Insurance
On most conventional loans, an LTV above roughly 80 percent means the lender requires private mortgage insurance to offset the added risk. Government-backed loans like FHA and USDA have their own insurance or guarantee fee structures regardless of LTV.
As you pay down principal or your home's value rises, your LTV improves over time, which is one reason many owners eventually ask their lender to drop mortgage insurance.
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Frequently Asked Questions — Loan-to-value ratio (LTV)
What is a good LTV?
A lower LTV is generally viewed favorably by lenders, though acceptable ranges vary by loan program and lender.
Does LTV affect my interest rate?
It can. Lenders often price loans more favorably when LTV is lower because their risk is reduced.
Can I lower my LTV without a bigger down payment?
Yes. Paying down principal over time or a rise in appraised value both improve your LTV.
Is LTV calculated the same way for a refinance?
The concept is the same, but a refinance LTV compares your new loan amount to your home's current appraised value, not your original purchase price.