What Is Loan-to-Value (LTV) Ratio? How to Calculate It

Search Fintrev

Search our guides, reviews and glossary.

The loan-to-value (LTV) ratio is the size of a loan divided by the value of the asset that secures it, expressed as a percentage. In a mortgage, it compares the amount you borrow with the home’s appraised value (or, on a purchase, usually the lower of the appraised value and the purchase price). A $270,000 loan on a $300,000 home has an LTV of 90%. The remaining 10% is the borrower’s equity. Lenders read LTV as a measure of how much protection the collateral gives them if the loan goes bad. A lower ratio means a larger cushion and less risk for the lender.

How loan-to-value works

LTV is central to mortgage underwriting. Lenders calculate it when you buy a home, refinance an existing mortgage, or borrow against the equity you have built up. The logic is the same each time: the closer the loan gets to the full value of the property, the less room the lender has if it has to foreclose and sell the home.

Suppose a borrower owes nearly what the house is worth and stops paying. A foreclosure sale may bring in less than the appraised value, and selling, legal and holding costs reduce the proceeds further. With little equity in the property, the lender may not recover the outstanding balance. A borrower with a large down payment also has more of their own money at stake, which lenders view as an incentive to keep paying. For both reasons, higher LTV loans are treated as riskier and priced accordingly.

The LTV formula

The LTV ratio is calculated as:

LTV = (Loan amount ÷ Property value) × 100

Two inputs drive the result:

• Loan amount. On a purchase, this is the price minus your down payment (plus any financed fees, if your loan includes them). On a refinance or home equity loan, it is the new balance you are requesting.
• Property value. For a purchase, lenders generally use the lower of the appraised value and the contract price. For a refinance, they generally use a current appraisal or an approved valuation method.

The equity side is the mirror image: equity percentage = 100% − LTV. A 75% LTV means the owner holds 25% equity.

Worked examples

Hypothetical example 1: price equals appraisal. A home appraises at $100,000 and sells for $100,000. The buyer puts down $10,000 and borrows $90,000.

LTV = $90,000 ÷ $100,000 = 90%

Hypothetical example 2: price below appraisal. A home appraises at $100,000, but the seller accepts $90,000. The buyer puts down $10,000, so the loan is $80,000. Because the lender uses the lower of price and appraisal, the value used is $90,000.

LTV = $80,000 ÷ $90,000 = about 88.9%

If the buyer raises the down payment to $15,000, the loan falls to $75,000:

LTV = $75,000 ÷ $90,000 = about 83.3%

Getting a below-market price does not lower your LTV by itself. Only the down payment changes the loan amount here. A buyer who expected the $100,000 appraisal to count would have calculated 80% and assumed no PMI, while the lender’s figure is closer to 89%.

Hypothetical example 3: LTV after several years. A homeowner borrowed $240,000 on a $300,000 home (80% LTV). Years later the balance is $200,000 and a new appraisal values the home at $350,000.

Current LTV = $200,000 ÷ $350,000 = about 57%

Both forces lowered the ratio here: principal repayment shrank the numerator, and appreciation raised the denominator. A price decline would push the ratio the other way.

How lenders use LTV

LTV is one input among several. Credit score, income, debt-to-income ratio, property type and occupancy all matter. LTV still has an outsized effect on three things.

Approval. Each loan program has a maximum LTV. A request above that limit is declined or must be restructured with a larger down payment or a smaller loan. Ratios above 95% are often outside what conventional lenders will accept, except under specific programs.

Pricing. Borrowers at or below 80% LTV tend to qualify for the best rates. A borrower at 95% may be approved, but at a higher rate than a similar borrower at 75%. For loans sold to Fannie Mae and Freddie Mac, this shows up through loan-level price adjustments (LLPAs), upfront fees that vary with LTV and credit score. The framework was revised in May 2023: some borrowers with scores of 740 or higher saw fees increase, while some below 640 saw them fall. Within a credit tier, a larger down payment generally still means a lower fee. Because these costs can be paid upfront or built into the rate, comparing offers by APR captures their full effect.

Mortgage insurance. On conventional loans, an LTV above 80% usually triggers private mortgage insurance. No law requires lenders to set the line at 80%, but it is the industry convention. Exceptions occasionally appear for borrowers with high income, low debt or substantial assets.

PMI and the 80% line

PMI protects the lender, not the borrower, even though the borrower pays for it. Its annual cost commonly falls between about 0.2% and 2% of the loan amount.

Hypothetical example: at a 1% annual PMI rate on a $100,000 loan, the premium is $1,000 a year, or about $83.33 a month.

PMI is not permanent on conventional loans. Under the federal Homeowners Protection Act, borrowers can ask to cancel PMI once the balance reaches 80% of the home’s original value, meaning the lower of the purchase price and the appraisal at origination. Coverage must end automatically when the balance is scheduled to reach 78% of original value, provided the loan is current. Scheduled payments alone therefore move you toward cancellation, regardless of what the market does.

If your home has appreciated, many servicers allow cancellation based on a new appraisal. They set their own conditions, such as a minimum seasoning period and a lower LTV threshold, and these rules come from the servicer or investor, not the statute. Refinancing into a new loan at 80% or less also eliminates PMI, though it brings new closing costs and a new rate.

LTV rules by loan type

FHA loans

Federal Housing Administration loans are made by FHA-approved lenders and insured by the FHA. They are aimed at low- to moderate-income borrowers and accept smaller down payments and lower credit scores than many conventional loans. The maximum purchase LTV is 96.5%, equal to a 3.5% down payment.

Instead of PMI, FHA loans carry a mortgage insurance premium (MIP), with both an upfront and an annual component. Under current HUD rules, annual MIP lasts for the life of the loan when the original LTV is above 90%. With at least 10% down, it ends after 11 years. Unlike PMI, it does not disappear when you pay down to 80%. Many FHA borrowers therefore refinance into a conventional loan once their LTV reaches 80% to drop the premium.

VA and USDA loans

Loans guaranteed by the U.S. Department of Veterans Affairs (for eligible service members, veterans and some surviving spouses) and by the U.S. Department of Agriculture (for eligible rural and suburban areas) can reach 100% LTV, meaning no down payment. Neither requires PMI. Each has its own charges instead: VA loans carry a funding fee, and USDA loans carry guarantee fees.

Fannie Mae and Freddie Mac programs

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs, designed for lower-income borrowers, allow LTVs up to 97%. They require mortgage insurance until the ratio falls to 80%.

Refinancing at high LTV

For FHA, VA and USDA loans, streamlined refinance options can waive the appraisal, so the current LTV does not block the refinance. On the conventional side, Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible have accepted LTVs up to 97% for eligible borrowers.

LTV vs. combined LTV (CLTV)

Standard LTV looks at one loan, usually the first mortgage. Combined loan-to-value (CLTV) adds every loan secured by the property, including second mortgages, home equity loans, HELOCs and other liens, and divides the total by the property’s value.

CLTV = (First mortgage + all other secured loans) ÷ Property value × 100

Hypothetical example: a home is worth $200,000 and has a $100,000 first mortgage, a $30,000 second mortgage and a $20,000 HELOC balance.

• LTV = $100,000 ÷ $200,000 = 50%
• CLTV = ($100,000 + $30,000 + $20,000) ÷ $200,000 = 75%

The 50% figure suggests ample equity, while the 75% figure shows how much is actually pledged. CLTV matters most in foreclosure, where the first-lien lender is paid first and junior lenders absorb losses if the sale falls short. Lenders evaluating a home equity loan or HELOC use CLTV to see how much room is left. Many cap lending around 80% CLTV and reserve that level for borrowers with strong credit.

A related measure, high combined LTV (HCLTV), counts the full credit limit of a HELOC rather than only the amount drawn. A $50,000 line with $20,000 outstanding adds $20,000 to CLTV but $50,000 to HCLTV, because the borrower could draw the rest at any time.

LTV beyond home mortgages

The same ratio appears wherever a loan is secured by an asset.

• Auto loans. LTV compares the loan with the vehicle’s value. Financing taxes, fees or negative equity from a trade-in can push it above 100%, which matters because cars typically lose value as they age.
• Commercial real estate. Lenders apply LTV to income-producing property, usually alongside cash-flow measures, and the value is often derived from the property’s income rather than comparable sales.
• Securities-based and crypto loans. LTV is loan balance ÷ current collateral value, so it rises when the collateral falls. Once it reaches the lender’s threshold, the borrower may have to add collateral or repay part of the loan, and the lender may sell the collateral. Hypothetical example: a $5,000 loan against $10,000 of collateral starts at 50% LTV. If the collateral drops to $7,000, LTV becomes about 71%.

Terms LTV is confused with

Down payment percentage. On a purchase at a price equal to the appraisal, LTV equals 100% minus the down payment percentage. That shortcut breaks when the appraisal comes in below the price, because the lender then uses the lower appraisal. It also breaks if fees are financed into the loan.

Debt-to-income (DTI) ratio. DTI compares monthly debt payments with monthly income. It measures ability to pay. LTV measures collateral coverage. A borrower can have a low LTV and an unaffordable DTI, or the reverse.

Lifetime value. In marketing and business analytics, LTV (or CLV) means customer lifetime value, the revenue a customer is expected to generate. It shares the abbreviation and nothing else.

Limitations of loan-to-value

Value is an estimate. An appraisal is one professional’s opinion on one date. In a falling market, today’s 80% LTV can become 90% without the borrower borrowing another dollar.

It says nothing about the borrower’s finances. LTV ignores income stability, other debts and credit history. That is why lenders pair it with DTI and credit scores, and why a low LTV does not guarantee approval.

FAQs

The Bottom Line

LTV matters to anyone buying, refinancing or borrowing against a home, because it shapes approval, rates and mortgage insurance. Reaching 80% or less generally earns better pricing and lets conventional borrowers cancel PMI, while FHA borrowers with less than 10% down often refinance to drop MIP. Lenders also weigh credit and DTI, so a low LTV helps but does not guarantee approval.