If you are buying a home or refinancing, you may hear the term LTV. But what is LTV, and why does it matter?
LTV stands for loan-to-value ratio. It compares the amount of your mortgage loan to the value of the property.
How Is LTV Calculated?
To calculate LTV, divide the loan amount by the home’s value. Then multiply that number by 100.
Loan amount ÷ Property value = LTV
For example:
- Home value: $500,000
- Loan amount: $400,000
- LTV: 80%
In this example, the buyer has 20% equity in the home.
For a purchase, lenders usually use the lower of the purchase price or appraised value when calculating LTV.
Why Does LTV Matter?
Your LTV can affect several parts of your mortgage, including:
- Your available loan programs
- Your interest rate
- Mortgage insurance requirements
- The amount of equity you have in the home
In general, a lower LTV means you are borrowing less compared to the property’s value. This can give you access to better loan terms.
However, you do not always need a 20% down payment to buy a home. Many conventional, FHA, VA, and down payment assistance programs allow buyers to purchase with much less.
Mortgage Insurance
On many conventional loans, private mortgage insurance may be required when the LTV is higher than 80%.
Mortgage insurance helps protect the lender, but it can also make homeownership possible with a smaller down payment.
FHA loans calculate mortgage insurance differently, while eligible VA loans typically do not require monthly mortgage insurance.
Refinancing
LTV is also important when refinancing.
The lender compares your current loan balance to the appraised value of your home. Your LTV may affect whether you qualify for a refinance, how much cash you can take out, and which interest rates are available.
As your home value increases or your loan balance decreases, your LTV may improve.
Let’s Run the Numbers
Understanding LTV can help you compare your mortgage options, but it is only one part of the full picture.
At Houzd Mortgage, we can help you review different down payment options and see how each one affects your monthly payment, mortgage insurance, and available loan programs.
Contact our team and let’s run the numbers.
Written by Anthony VanDyke, Utah Mortgage Broker — NMLS #247102 — President at Houzd Mortgage in Draper, Utah.
A mortgage broker since 2006, Anthony has helped thousands of Utah families build a stronger financial future, one home at a time. He believes a mortgage isn’t just a loan — it’s a long-term financial strategy that can shape a family’s wealth and peace of mind.
👉 See what you qualify for with Anthony’s Purchase Qualifier Tool.