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Loan to value ratio (LTV) is a percentage that compares your mortgage loan amount to the appraised value of your home. To calculate it, divide your loan amount by the appraised value and multiply by 100. If you borrow $320,000 to buy a home appraised at $400,000, your LTV is 80%.
Lenders use LTV to measure risk. A higher LTV means you have less equity in the home — and less of a financial cushion protecting the lender if you default. That risk shows up in your mortgage in three concrete ways: it affects your interest rate, determines whether you need to pay private mortgage insurance (PMI), and sets the ceiling on how much you can borrow when refinancing or accessing home equity. Understanding your LTV — and what moves it — puts you in a stronger position at every stage of homeownership.
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How to calculate your LTV ratio
The formula is straightforward:
LTV = (Loan amount ÷ Appraised value) × 100
Two things matter here that buyers sometimes miss. First, lenders use the appraised value — determined by a licensed appraiser — not the purchase price or an online estimate. If you agree to pay $410,000 for a home that appraises at $400,000, the lender uses $400,000. Second, on a purchase, your loan amount is the purchase price minus your down payment.
Here is how the calculation works in two common scenarios:
| Scenario | Home value | Loan amount | LTV |
|---|---|---|---|
| Purchase with 10% down | $400,000 | $360,000 | 90% |
| Purchase with 20% down | $400,000 | $320,000 | 80% |
| Refinance (balance remaining) | $400,000 | $280,000 | 70% |
| Cash-out refinance | $400,000 | $340,000 | 85% |
For a quick reference on how this ratio is defined in lending practice, see Better's loan to value ratio FAQ.
What LTV ratio means for your mortgage
LTV is one of the primary factors lenders use to price a loan and determine what products you qualify for. Its effects on your mortgage fall into two main categories: your interest rate and your insurance requirement.
LTV and interest rates
Lenders price mortgage rates in tiers based on LTV. A borrower at 75% LTV typically receives a better rate than the same borrower at 90% LTV — everything else equal. The logic is simple: less equity means more lender risk, and lenders charge for that risk in the form of a higher rate.
The difference between rate tiers is not always dramatic, but on a $350,000 loan held for 30 years, even a 0.25% rate difference compounds into thousands of dollars. Knowing where you land on the LTV spectrum — and what you would need to move down a tier — is a useful calculation to run before you commit to a down payment amount.
LTV and PMI
On conventional loans, an LTV above 80% typically requires private mortgage insurance (PMI). PMI protects the lender — not you — in the event of default, and its cost is added to your monthly payment. Understanding private mortgage insurance (PMI) helps clarify both the cost and how to eliminate it.
The good news: PMI is not permanent. Once your LTV reaches 80% — through principal paydown, home value appreciation, or a combination — you can request that your lender remove it. How to get rid of PMI covers the specific steps and timing rules that apply.
FHA loans work differently. Mortgage insurance premium (MIP) applies to all FHA loans regardless of LTV — at origination and, in most cases, for the life of the loan. VA loans have no mortgage insurance requirement at any LTV for eligible veterans. Understanding MIP vs. PMI is essential if you are comparing loan types.
LTV thresholds by loan type and purpose
Different loan programs set different LTV maximums. Here is how the key thresholds break down:
| Loan type / purpose | Maximum LTV | PMI or MIP required? |
|---|---|---|
| Conventional purchase | 97% | Yes, if LTV above 80% |
| FHA purchase | 96.5% | Yes — for life of loan in most cases |
| VA purchase | 100% | No |
| Jumbo purchase | 80–90% (varies by lender) | Varies |
| Conventional rate-and-term refinance | 97% | Yes, if LTV above 80% |
| Conventional cash-out refinance | 80% | Yes, if applicable |
| HELOC / home equity loan | Up to 80–90% CLTV | N/A |
A few notes on this table. The 80% cash-out refinance limit is important: lenders typically require you to retain at least 20% equity after the cash-out, which caps your new loan balance at 80% of the home's appraised value. The jumbo LTV range varies more widely than conventional and FHA — some jumbo lenders allow up to 90% with strong credit and reserves, while others cap at 80%. For more on how to qualify for a mortgage, including how LTV interacts with credit and income requirements, see Better's full qualification guide.
Combined loan to value (CLTV)
When you have more than one loan against a property — a first mortgage plus a HELOC or home equity loan, for example — lenders calculate combined loan to value (CLTV) rather than simple LTV. CLTV adds up all loans secured by the property and divides by the appraised value.
CLTV = (All loan balances ÷ Appraised value) × 100
If your first mortgage balance is $250,000, you want to open a $50,000 HELOC, and your home is worth $400,000, your CLTV would be 75%. Most lenders cap CLTV at 80–90% for home equity products. For a full breakdown of how CLTV works and why it matters specifically for equity borrowing, see Better's guide to combined loan to value (CLTV).
The distinction matters: a lender approving a HELOC is not just looking at your first mortgage LTV in isolation. They are looking at the total claim on your home relative to its value.
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How your LTV changes over time
LTV is not fixed. It moves in your favor as you pay down your mortgage balance and as your home's value increases — and those changes open doors.
Principal paydown. Every mortgage payment reduces your loan balance, which reduces your LTV. In the early years of a 30-year loan, most of your payment goes toward interest, so the LTV reduction is gradual. It accelerates in later years as the amortization schedule shifts more of each payment to principal.
Home value appreciation. If your home appreciates in value, your LTV falls even if your loan balance stays the same. Home appreciation has historically been a meaningful driver of equity growth for long-term homeowners. A significant appreciation event — common in competitive markets — can push your LTV below 80% faster than scheduled payments alone.
Key LTV milestones to watch:
| LTV milestone | What it unlocks |
|---|---|
| Below 97% | Conventional loan eligibility (purchase) |
| Below 90% | Better rate tiers on many conventional products |
| Below 80% | PMI removal eligibility; cash-out refinance access; better rates |
| Below 80% CLTV | HELOC and home equity loan access at standard terms |
| Below 75% | Most favorable rate tiers; maximum equity product access |
When your LTV hits 80% — whether through paydown, appreciation, or both — you have two useful options: request PMI removal on your existing loan, or explore refinancing your mortgage to lock in a better rate now that your equity position has improved. If you want to drop PMI through refinancing specifically, see refinance to remove PMI for how that path works. If down payment assistance helped you get into your home at a higher LTV, tracking your progress toward 80% is especially worth doing.
FAQ
What is loan to value ratio and why does it matter for a mortgage?
Loan to value ratio (LTV) is the percentage of a home's appraised value that is being financed by a mortgage. It is calculated by dividing the loan amount by the appraised value and multiplying by 100. Lenders use LTV to assess risk: higher LTV means less borrower equity and more lender exposure. It directly affects your interest rate, whether you are required to carry PMI, and what loan programs and home equity products you qualify for. See also: loan to value ratio in Better's FAQ.
How do I calculate my LTV ratio?
Divide your loan amount by the appraised value of the home, then multiply by 100. Example: a $270,000 loan on a home appraised at $300,000 produces an LTV of 90%. On a purchase, your loan amount equals the purchase price minus your down payment. Lenders always use the appraised value — not the purchase price or an online estimate.
What is a good LTV ratio to get approved for a mortgage?
It depends on the loan type. Conventional loans allow up to 97% LTV. FHA loans allow up to 96.5%. VA loans allow 100% for eligible veterans. Jumbo loans typically require 80–90% or lower. For the best rates and no PMI requirement on a conventional loan, 80% or below is the standard target. The lower your LTV, the less risk you represent to the lender — which typically means better terms.
Does a high LTV ratio mean I have to pay PMI?
On conventional loans, yes — an LTV above 80% generally triggers a PMI requirement. PMI is added to your monthly payment and protects the lender if you default. Once your LTV reaches 80%, you can request removal. FHA loans require MIP (mortgage insurance premium) regardless of LTV. VA loans have no mortgage insurance requirement at any LTV. Understanding MIP vs. PMI helps clarify the difference when comparing loan programs.
What LTV do I need to refinance my mortgage?
For a conventional rate-and-term refinance, most lenders allow up to 97% LTV. For a cash-out refinance, the standard maximum is 80% LTV — meaning you must retain at least 20% equity after the new loan closes. For a HELOC or home equity loan, lenders typically look at your combined loan to value (CLTV) across all loans, with most capping at 80–90% combined loan to value (CLTV).
How does my LTV change over time as I pay down my mortgage?
Your LTV falls as your loan balance decreases through regular payments and as your home's appraised value increases. Early in a 30-year mortgage, paydown is slow — most of your payment covers interest. LTV reduction accelerates in later years. Home value appreciation can accelerate the process significantly. Reaching 80% LTV unlocks PMI removal on conventional loans and improves your position for refinancing or equity borrowing.
What is the difference between LTV and CLTV?
LTV (loan to value) measures a single loan against the property value. CLTV (combined loan to value) measures all loans secured by the property — typically a first mortgage plus a HELOC or second mortgage — against the value. CLTV is the figure lenders use when you are applying for a home equity product on top of an existing mortgage. See Better's full guide to combined loan to value (CLTV) for the full breakdown.
The bottom line
LTV is one of the most actionable numbers in your mortgage profile. It determines your rate tier, your PMI requirement, your refinance eligibility, and your access to home equity products — and unlike your credit score, it is directly tied to a decision you make upfront: how much to put down.
A larger down payment lowers your LTV at purchase, opening better rates and eliminating PMI from day one. As you build equity over time through paydown and appreciation, your LTV falls further — unlocking additional options at each threshold. Getting pre-approved gives you a precise LTV picture and shows you exactly how your down payment choices translate into loan terms.
...in as little as 3 minutes — no credit impact