Explore This LTV Guide
Jump directly to the topic you need.
What Is Loan-to-Value Ratio?
Loan-to-value ratio, commonly called LTV, compares the first mortgage amount with the property value used by the lender. It is expressed as a percentage.
A lower LTV generally means the borrower has more equity in the property. A higher LTV means a larger share of the property value is financed.
LTV may influence mortgage insurance, interest-rate pricing, loan eligibility, appraisal requirements and refinance options.
Purchase LTV vs. Refinance LTV
The property value used may depend on the transaction type.
Home Purchase
For many purchase transactions, the lender generally uses the lower of the purchase price or appraised value when determining LTV.
- Purchase price: $450,000
- Appraised value: $460,000
- Value used: $450,000
Mortgage Refinance
A refinance generally relies on the current appraised value or another value accepted under the applicable program.
- Current appraised value: $500,000
- New first mortgage: $375,000
- Estimated LTV: 75%
Why Loan-to-Value Ratio Matters
LTV can affect several parts of a mortgage transaction.
Mortgage Insurance
Higher-LTV conventional loans may require private mortgage insurance, subject to program rules.
Interest-Rate Pricing
Loan pricing may vary based on LTV, credit, occupancy, property type and other risk factors.
Down Payment
A larger down payment generally lowers LTV by reducing the amount financed.
Loan Approval
Maximum allowable LTV can vary by loan program and transaction type.
Refinance Options
Current LTV can influence available rate-and-term, cash-out and mortgage-insurance options.
Available Equity
Lower LTV generally corresponds with a larger equity position.
How Down Payment Changes LTV
The examples below assume a $400,000 purchase price and matching appraised value.
| Down Payment | Loan Amount | Estimated LTV |
|---|---|---|
| 3% | $388,000 | 97% |
| 5% | $380,000 | 95% |
| 10% | $360,000 | 90% |
| 20% | $320,000 | 80% |
| 25% | $300,000 | 75% |
Ways to Lower Your LTV
Reducing the ratio can improve equity and may expand financing options.
Increase the down payment
Borrowing less against the same property value directly lowers LTV.
Reduce the requested loan amount
Use available funds or seller credits strategically where permitted.
Pay down principal
Regular and extra principal payments may lower LTV over time.
Support the property value
Provide relevant comparable sales or improvement details when an appraisal review is appropriate.
Wait for additional equity
Principal reduction and market appreciation may improve future refinance options.
Review alternative loan structures
Different programs may evaluate the same transaction differently.
LTV vs. Debt-to-Income Ratio
These ratios measure different parts of mortgage risk.
| Loan-to-Value Ratio | Debt-to-Income Ratio |
|---|---|
| Measures the loan amount relative to property value. | Measures monthly qualifying debt relative to gross monthly income. |
| Influences equity, mortgage insurance and pricing. | Influences affordability and repayment capacity. |
| Changes when the loan balance or property value changes. | Changes when income or monthly debt obligations change. |
| Property-focused ratio. | Borrower cash-flow ratio. |
Learn more in our debt-to-income ratio guide.
Loan-to-Value Ratio FAQs
Answers to common LTV questions.
What is loan-to-value ratio?
Loan-to-value ratio compares the first mortgage amount with the property value used by the lender and expresses the result as a percentage.
What is considered a good LTV?
There is no universal ideal ratio. Lower LTV generally means more equity, but the appropriate level depends on the loan program, borrower goals and available funds.
Does LTV affect mortgage rates?
It can. Mortgage pricing may vary based on LTV along with credit, occupancy, property type, loan purpose and market conditions.
Does LTV affect PMI?
Yes. Higher-LTV conventional loans may require private mortgage insurance, subject to program requirements and cancellation rules.
How does an appraisal affect LTV?
The lender uses an accepted property value in the calculation. A lower appraisal can increase LTV and may change the required down payment or loan structure.
What is CLTV?
Combined loan-to-value includes the first mortgage plus outstanding balances on subordinate financing secured by the property.
What is HCLTV?
HCLTV may include the first mortgage, other lien balances and the full available credit line on a HELOC, depending on program rules.
Can I refinance with a high LTV?
Possibly. Available options depend on the loan program, property type, occupancy, credit profile and current market value.
Does paying down my mortgage reduce LTV?
Yes, assuming the property value remains stable. Reducing the principal balance lowers the numerator in the LTV calculation.
Can home improvements lower LTV?
Improvements may support a higher appraised value, but the effect depends on market evidence and the appraiser’s analysis.
Does a second mortgage affect LTV?
It generally affects CLTV and potentially HCLTV, even though first-mortgage LTV may remain unchanged.
Can seller credits lower LTV?
Seller credits generally help with eligible closing costs rather than directly increasing the down payment, subject to program rules.
Can I remove PMI when LTV falls?
PMI cancellation may be possible when applicable legal, investor, seasoning, payment-history and property-value requirements are met.
Does LTV use market value or replacement cost?
LTV generally uses the accepted real-estate value for lending purposes, not the homeowners insurance replacement-cost estimate.
How often is LTV recalculated?
LTV may be recalculated when the loan amount, appraisal, purchase price or lien structure changes and during future refinance or mortgage-insurance reviews.
Metropolitan Mortgage Corporation
NMLS #227722
Serving Kansas and Missouri
This page and calculator are provided for general educational purposes and are not a commitment to lend or a determination of qualification. Actual LTV, CLTV and HCLTV calculations depend on accepted property value, lien information, loan-program requirements and underwriting findings.
I am raw html block.
Click edit button to change this html