What Is Loan-to-Value?
Loan-to-value (LTV) is the loan amount divided by the property's value - for a purchase, usually the lower of the price and the appraisal - shown as a percentage. It is used when lenders price and approve a mortgage, and matters because it decides mortgage insurance, rate tiers and how much you can borrow.
Loan-to-Value in plain English
LTV is the share of the home's value you are borrowing. Put 20% down and you borrow 80% - an 80% LTV. The rest is your equity.
The lower the LTV, the less risk the lender takes, which usually means a better rate and, on a conventional loan, no mortgage insurance.
Advanced explanation
Loan-to-value is the ratio of the loan's principal balance to the property value used for underwriting - for a purchase, generally the lower of the contract price or appraised value. Lenders also track combined LTV (CLTV), which includes subordinate liens such as a HELOC. LTV thresholds drive pricing, mortgage insurance requirements and maximum loan amounts.
Formula
LTV = Loan Amount ÷ Property Value × 100- Loan Amount
- The mortgage balance (for CLTV, add every loan secured by the home).
- Property Value
- For a purchase, generally the lower of the contract price and the appraised value; for a refinance, the appraised value.
Related forms: Combined LTV (CLTV) = All Loans Secured by the Property ÷ Property Value × 100.
Worked example
LTV when the appraisal comes in below the price
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Contract price
- $400,000
- Appraised value
- $395,000
- Planned loan (20% down on the price)
- $320,000
| Step | Calculation | Result |
|---|---|---|
| 1. Value the lender uses (lower of price and appraisal) | lower of $400,000 and $395,000 | $395,000 |
| 2. LTV | $320,000 ÷ $395,000 × 100 | 81.01% |
| 3. Loan that keeps LTV at 80% | $395,000 × 80% | $316,000 |
| 4. Extra cash to stay at 80% | $320,000 − $316,000 | $4,000 |
LTV: 81.01%. Twenty percent down on the price is no longer twenty percent of the value the lender uses. At 81.01% LTV a conventional loan usually needs mortgage insurance - unless the buyer adds $4,000 of cash.
What this calculation leaves out
- Programs differ on the value they use; for a refinance it is usually the new appraisal.
- Combined LTV (CLTV) adds any second mortgage or HELOC.
Try it: Loan-to-Value with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Loan-to-value and the PMI thresholds
Lenders divide the loan by the lower of the price and the appraised value. Above 80%, a conventional loan usually needs private mortgage insurance.
- Loan-to-value
- 81.01%
- PMI usually required
- Extra cash to reach 80%
- $4,000
- Bigger down payment, smaller loan
- Scheduled payments to 78%
- 3.2 years (38 months)
- When PMI ends automatically
- No PMI (0%-80%)
- PMI usually required (80%-95%) - you are here
- High LTV (95%+)
- 78%: PMI ends automatically (scheduled)
- 80%: PMI can be cancelled on request
- 97%: Common conventional maximum
Show the numbers as a table
| Milestone | Balance | When |
|---|---|---|
| Today | $320,000 | 81.01% |
| 80%: request PMI cancellation | $316,000 | 14 months |
| 78%: PMI ends automatically | $308,100 | 3.2 years (38 months) |
Formula
LTV = Loan amount ÷ Lower of price and appraised value × 100Assumptions
- Conventional loan. FHA mortgage insurance follows different rules.
- Timelines use scheduled payments only; extra payments or a new appraisal can shorten them.
- The 80% and 78% points are from the Homeowners Protection Act (CFPB summary).
Why it matters
Lower LTV generally means better loan terms and, on a conventional loan, may remove the requirement for PMI.
LTV sets whether you pay mortgage insurance, which rate tier you get and, on a refinance, how much cash you can take out. Crossing 80% on a conventional loan typically adds PMI; very high LTVs narrow your loan options.
When Loan-to-Value is used
- Choosing a down payment that avoids or shortens private mortgage insurance.
- Checking how much equity a HELOC or cash-out refinance could unlock.
- Sizing an investment-property loan, where lenders cap LTV alongside DSCR or debt yield.
What it means for you
How does it affect my budget?
A higher LTV means a smaller down payment now but a larger loan, and often mortgage insurance, every month.
What buyers should know
If the appraisal comes in low, your LTV rises even though your down payment did not change - plan cash for that case.
Common mistakes
- Calculating LTV from the price when the appraisal is lower.
- Forgetting a second mortgage or HELOC, which counts toward CLTV.
- Assuming LTV falls as the market rises - for PMI cancellation, lenders use the original value unless you get a new appraisal under their rules.
Compare and common questions
Loan-to-Value: frequently asked questions
What is a good loan-to-value ratio?
80% or lower is the common benchmark, because conventional loans at or below 80% LTV generally do not require private mortgage insurance. Lower LTVs can also qualify for better pricing.
Does LTV use the purchase price or the appraisal?
For a purchase, lenders generally use the lower of the two. If the appraisal is below the price, your LTV is higher than your down payment percentage suggests.
How do I lower my LTV?
Make a larger down payment, pay down principal, or - on an existing loan - show a higher value with a new appraisal where the lender allows it.
What is the difference between LTV and CLTV?
LTV counts the first mortgage only; CLTV adds every other loan secured by the home, such as a HELOC or a second mortgage.
Go deeper
Recommended calculators
Run Loan-to-Value with your own numbers:
Where it fits
- Buying a home, Appraisal: before this, Appraisal Contingency; next, Market Value.
- Investing, Refinancing: before this, Refinance; next stage, Exit: 1031 Exchange.
More Financing Terms
Recommended next step
See how each down payment changes LTV, PMI and the monthly payment.
Down payment and PMI calculator →Apply it to a specific property: Monthly ownership analysis.
Sources and review
- What is a loan-to-value ratio and how does it relate to my costs?, Consumer Financial Protection Bureau. Supports: LTV compares the loan with the appraised value and affects eligibility, mortgage insurance and the rate.
Where this applies: United States. Federal disclosure rules apply nationwide; loan-program limits are set by each program (Fannie Mae shown) and individual lenders may be stricter.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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