What Is the Loan-to-Value Ratio? (LTV)

October 12, 2009 26 Comments »
What Is the Loan-to-Value Ratio? (LTV)

Mortgage Q&A: “What is the loan-to-value ratio?”

You’ve probably heard the phrase loan-to-value ratio get thrown around a lot lately, what with all the stories of negative equity and underwater homeowners. The same might be true if you’ve been shopping for a mortgage.

Regardless of what’s going on in the housing market, you should know this important term when applying for a mortgage to ensure you get the best deal as it can greatly affect pricing and loan eligibility.

How to Calculate the Loan-to-Value Ratio (LTV)

loan to value ratio

Put simply, the loan-to-value ratio, or “LTV ratio” as it’s more commonly known in the industry, is the mortgage loan amount (or existing balance for a refinance) divided by the purchase price or current appraised value of the property. When calculating it, you will wind up with a percentage. That percentage is your LTV.

It’s actually very easy to calculate (no algebra required) and takes just one step. Honest!

Let’s calculate a typical LTV ratio:

Property Value: $500,000
Loan Amount: $350,000
Loan-to-value Ratio (LTV): 70%

In the above example, we would divide $350,000 by $500,000 to come up with a loan-to-value ratio of 70%.

Using a calculator, simply enter in 350,000, then hit the divide symbol, then enter 500,000. You should see “0.7,” which translates to 70%.

This means the borrower has a loan for 70 percent of the property value, with the remaining 30 percent the home equity portion, or ownership in the property.

LTV ratios are extremely important when it comes to mortgage rate pricing because they represent how much skin you have in the game, which is a key risk factor.

A Lower LTV Ratio Means More Ownership, Better Rate

Essentially, the lower the loan-to-value ratio, the better, as it means you have more ownership (home equity) in the property.  Someone with more ownership is less likely to fall behind on payments or foreclose, seeing that they have a greater equity stake, aka financial interest to keep paying each month.

Not only that, but banks and mortgage lenders also set up pricing adjustment tiers based on the LTV ratio.  Those with lower LTV ratios will enjoy the lowest interest rates available, while those with high LTVs will be subject to higher costs and rates.

For example, if you’re being hit for having a less-than-stellar credit score, that adjustment will grow larger as the loan-to-value ratio increases (higher LTV ratio = greater risk).

So if your mortgage rate is bumped a quarter of a percent higher for a loan-to-value ratio of 80%, that same pricing hit may be increased to a half a percent if the LTV ratio is 90%.

This can certainly raise your interest rate in a hurry, so you’ll want to look at all possible scenarios with regard to down payment and loan amount to keep your LTV ratio as low as possible.

80% LTV Is a Very Important Threshold!

Most borrowers (who are able to) elect to put 20% down, as it allows them to avoid the need for mortgage insurance and the higher pricing adjustments often associated with LTVs above 80%.

But you don’t necessarily need to put 20% down to enjoy the benefits of a low-LTV mortgage.

Looking at the above example again, if you were to raise the first mortgage amount to $400,000 and add a second mortgage of $50,000, the combined loan-to-value ratio, or CLTV, would be 90%.

Simple math: $400,000 + $50,000 = $450,000 / $500,000 = 90% CLTV

You would have a first mortgage at 80% LTV, and a second mortgage for an additional 10% LTV, making the CLTV 90%.

Sometimes borrowers elect to break up home loans into a first and second mortgage, known as combo mortgages, to keep the loan-to-value ratio below key levels, thereby reducing the interest rate and/or avoiding private mortgage insurance.

Keep in mind that banks and lenders also have LTV and CLTV limits, meaning they won’t allow homeowners to borrow more than say 80, 90, or 100 percent of the property value (these limits have come down since the mortgage crisis got underway but are creeping back up again).

Max LTV by Loan Type

There are certain LTV limits based on loan type, with conventional offerings (non-government) typically being more restrictive than government loans.

At the moment, you can get an FHA loan as high as 96.5% LTV, which is just 3.5% down.

You can get a conventional loan as high as 97% LTV, which at 3% down is higher than it used to be. A year or two ago the max was 95%, but now Fannie Mae and Freddie Mac are competing directly with the FHA.

Finally, you can get either a VA loan or USDA loan at 100% LTV (no money down). These are the most flexible loan programs LTV-wise, but they are also only available to veterans or those living in rural areas, respectively. So not everyone will qualify.

And finally, those underwater or upside down borrowers you hear about; they owe more on their mortgage than the property is currently worth.  This can happen due to negative amortization and/or home price depreciation.

A quick underwater loan-to-value ratio example:

Property Value: $400,000
Loan Amount: $500,000
Loan to Value Ratio (LTV): 125%

As you can see, the underwater borrower has a LTV ratio greater than 100% (negative equity), which is a major problem from a risk point of view.

The problem with borrowers in these situations is that they have little incentive to stick around, even with a modified mortgage payment, as they’re so far in the red that there’s little hope of recouping home value losses.

However, it just so happens that the Home Affordable Refinance Program allows loan-to-values up to 125 percent.  And now there’s no LTV limit!

So there are options to refinance and get a lower interest rate, as long as your loan is owned by Fannie Mae or Freddie Mac.

Despite being far behind new homeowners entering the market in terms of building equity, many of these formerly underwater borrowers now have lots of equity thanks to years of home price appreciation and years of paying down their mortgages. That’s why you have to consider the long-game and never give up.

How to Lower Your LTV

If your LTV is higher than you’d like it to be, there are some options to lower it. Doing so may result in a more favorable mortgage rate or expanded loan program eligibility.

Borrowers can lower their LTV in two main ways.

If it’s a purchase, simply bring in more down payment money and the LTV will be lower.

If it’s a refinance, simply pay down the mortgage balance a bit more before you apply, whether on schedule or by making extra mortgage payments.

Another way existing homeowners can get their LTV down is if home values increase. You don’t have to do anything except sit back and watch your house value increase, thereby lowering your LTV. Of course, the opposite can happen too!

Read more: 10 ways to build home equity.


  1. Lisa Chung December 28, 2017 at 8:49 am - Reply

    I’m purchasing a new home from DR Horton. I’m placing $116k down on $289.99k purchase. Loan $174k. The loan is in my father’s name and title in both of our names. APR 30 yr fixed is 4.21% with 801 credit score. I’m also a real estate broker. Does this APR seem high to you?

    • Colin Robertson December 28, 2017 at 9:54 am - Reply


      The 30-year fixed is pricing around 4%-4.125% at the moment, so it doesn’t seem that out of the ordinary, even though you’re putting a lot down and have stellar credit. You may want to go through all the fees, points, and so on to see how they got to that number.

  2. Thad April 5, 2017 at 10:12 pm - Reply

    If a home is sold for 90% of appraised value, would lenders treat that as if the borrower had made a 10% down payment? Or would lenders typically treat that 90% as the basis for establishing home value and require a down payment over the 10% instant equity?

    • Colin Robertson April 6, 2017 at 8:54 am - Reply


      Generally LTV is based on lower of sales price and appraised value. Unless it’s a gift of equity, then it’s possible to treat it as part of the down payment, though minimum borrower contribution requirements may still apply.

  3. James September 28, 2016 at 9:24 pm - Reply

    Because it was stated loan w bb&t direct not protected by Fannie Mae or Freddie Mac so Harp does not qualify. Bb&t unwilling to modify without us paying $75k to refinance.

  4. James September 26, 2016 at 9:26 pm - Reply


    I was swindled into a stated loan and am now underwater by about $70k. Do you know where to go to get in refinanced into a standard loan? We are at 6.25% and want to take advantage of the current rates. Do you know what the max ltv as my only current home. Owe $225 worth $155k .

    My father and I were going into a retirement/investment property and thought instead of him putting 100k down just do 20% to avoid pmi on his and let me use $70k to refinance my home. This frees up enough money for me to then pay his mortgage taxes and insurance and savings lots of interest.

    • Colin Robertson September 28, 2016 at 2:16 pm - Reply


      If underwater you can see if you’re eligible for a HARP refinance. If not, maybe a proprietary loan mod with the loan servicer you’re currently with. Good luck.

  5. KW August 15, 2016 at 2:22 pm - Reply

    We are currently refinancing, but they are telling me since I have LTV of 77% that I will have to come up with $3000 at closing. House appraised at 215K and we owe 160,000, they added 5400 for fees and closing which is making the loan $165400, but now they are saying they are trying to get an exception. Is this normal? What does this mean?

    • Colin Robertson August 15, 2016 at 3:04 pm - Reply


      It sounds like they’re adding those fees to the outstanding loan balance, which seems odd if they’re trying to keep your LTV in a lower tier, such as at 75% or lower. Can they not offer a slightly higher rate and cover those closing costs with a lender credit to keep the LTV down?

  6. Brian July 22, 2016 at 9:25 am - Reply


    I am going through a refi presently. When the initial call and paperwork was completed, my points fees were 1.875%. We thought the LTV would come in around 72%. However, when the appraisal came back much lower than expected, the LTV came out to 80%. When new paperwork was sent across my fees went up to almost double for points. When I asked why they simply said it was because of the LTV difference. Is this common practice or should I seek another lender for my refi?

    • Colin Robertson July 22, 2016 at 3:06 pm - Reply


      If you’re paying points for a given rate, say 3.75%, and your LTV rises from 72% to 80%, there may be higher pricing adjustments at the higher LTV, and thus a higher cost in points to keep that rate of 3.75%. You could ask what interest rate the original point cost would get you at 80% LTV. It might be 4% but at the original cost…

  7. Chris July 15, 2016 at 6:32 am - Reply

    Hello Colin,
    Maybe you can help me understand my loan. I am in the process of closing a loan next week with a 3.375% rate. My loan officer stated to me that since my LTV is at 79% they have to charge me points. Plus my house is titled is a condo and not a single family residence.
    The points are .432% of the loan. Originally, I was told no points or origination fess besides the 3rd party fees. I wanted to know if this is a bait and switch or this is normal?
    What are your thoughts on this?

    • Colin Robertson July 18, 2016 at 10:27 am - Reply


      There is a pricing hit for condos above 75% LTV…you can ask for no cost pricing as well and see what rate you wind up with. It may be something like 3.5% but with no cost and perhaps even a partial rebate for some of your closing costs.

  8. achia May 12, 2016 at 6:48 pm - Reply

    Hi Colin,
    I have a question about mobile/manufactured homes. I noticed a lot on Zillow in the florida area.
    $8,000 Price
    Price cut: -$3,500 (4/25)
    Zestimate®: $131,699. If they Zestimate it’s actually worth 131699. How would this work LTV wise?

  9. Terri Williams March 15, 2016 at 3:16 pm - Reply

    Are there any institutions that will refinance at a ltv ratio of less than 80%?

    • Colin Robertson March 16, 2016 at 9:53 am - Reply


      A lower LTV indicates less risk meaning more lenders should offer financing…unless you’re talking about a HARP refinance that must be 80% LTV or higher.

  10. Bob Austin July 7, 2015 at 3:34 pm - Reply

    We owe 350000 on a Home valued at 460000. Would like to remodel and double the size of the house if not a little more. What are some options to accomplish this.

    • James January 27, 2016 at 10:57 am - Reply

      In my experience, adding on to your home rarely makes financial sense. You are typically better off moving and buying a larger home. The price you pay per square foot for quality construction to add on is almost always more than what you pay to purchase a home. Unless you hire a really good, high dollar architect and have a home that’s conducive to adding on, enlarged homes often look awkward and can be difficult to resell. If you really love the home you’re in and don’t want to move, find ways to use your space more efficiently. Don’t waste your money adding on.

  11. Julie June 19, 2015 at 1:21 pm - Reply

    Hello I am currently working with an income of 150,000 and looking to purchase a new construction around 360,000 max. I have student loans almost 200,000 but have a very low payment due to the loan forgiveness program and my occupation. Should I sell my house and take the 50,000 equity and put it down on the new house or should I rent out my home for extra income.

    • Colin Robertson June 19, 2015 at 2:28 pm - Reply


      It depends if you want to keep the existing home or if you need to sell to fund the construction loan. You might be able to pull equity from the existing property to fund the construction loan. Might want to sit down with someone well versed in construction loans to weigh all your options.

    • James January 27, 2016 at 11:02 am - Reply

      You shouldn’t be spending that much on a new home if you have that much student loan debt. Stay where you are for now and focus on paying off your student loans. You don’t need a new house. You know it’s the right thing to do. If the market tanks again, you’ll have a huge problem.

  12. Laura R. January 27, 2015 at 9:09 pm - Reply

    I am 2 1/2 years post short sale and would like to buy another home. I’m looking to purchase home within $400-$500,000 and have about $300,000+ for a down payment. My credit score is 720. With Fannie Mae requirements recently changing requiring a 4 year wait period regardless of LTV, are there any lenders that will accomodate me?

    • Colin Robertson January 28, 2015 at 10:42 am - Reply


      Some waiting periods are shorter with extenuating circumstances, but if that doesn’t apply to you, a portfolio lender might be willing to extend financing. They keep the loans on their own books and are thus willing to originate loans other agencies like Fannie/Freddie won’t. With that size down payment, you’ll hopefully have some options in the private market.

    • James January 27, 2016 at 11:05 am - Reply

      If you have that much cash available, you should use it to pay back the bank what they lost on your short sale. That should be considered as bad as a bankruptcy and cut you off for at least 7 years. And people say the banks are the criminals….

  13. Sabastian Garcia January 21, 2015 at 10:58 am - Reply

    HELLO excellent explanation on this page! I have a question though and I’m hoping you can help me out because I’ve been looking for the answer and haven’t found any info on it…well. Here it is.
    how do you calculate both the dollar amount and percent amount of equity if: you want to buy a house. an you take out a mortgage.

    EX: house cost $200,000 Down payment $40,000
    Loan $160,000
    three years pass: you’ve paid $10,000 off the loan. the house has appreciated by double so..
    house value $400.000
    My Equity as a Dollar amount is??
    MY Equity as a percent is??
    How did you figure those two questions out!??
    thanks a lot!!!!!

    • Colin Robertson January 21, 2015 at 11:52 am - Reply

      Hi Sabastian,

      I would take $160,000 (your original loan amount) and subtract $10,000, assuming that $10,000 paid off was toward principal (if not take your current loan balance). That should leave you with a loan balance of $150,000. Then I would divide $150,000 by your new home value of $400,000 and come up with 37.5% LTV. Your dollar amount of equity would be $400,000 – $150,000, or $250,000.

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