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Loan-to-Value Ratio (LTV)
Definition
Loan-to-value ratio is the percentage of a property's value that is being financed through a mortgage, calculated by dividing the loan amount by the property value.
Explanation
LTV is a key risk metric for lenders. A lower LTV (larger down payment) generally means better interest rates and fewer requirements. LTV above 80% typically requires PMI. Maximum LTV varies by loan type: conventional loans usually cap at 97%, FHA at 96.5%, and VA at 100%.
Example
A $240,000 loan on a $300,000 property = 80% LTV. A $270,000 loan on the same property = 90% LTV, which would require PMI.