What Is LTV (Loan-to-Value)?

Short answer

LTV is the loan amount divided by the lower of the purchase price or appraised value. A $400,000 loan on a $500,000 home is 80% LTV. The higher the LTV, the more risk the lender takes, which is why LTV drives your down payment requirement, your mortgage insurance and your rate.

Definition

Loan-to-value (LTV) expresses how much of the property you are financing versus how much equity you have. Combined LTV (CLTV) adds any second mortgage or HELOC to the first loan.

Worked example

Purchase price $600,000, appraisal $600,000, down payment $90,000. Loan = $600,000 - $90,000 = $510,000. LTV = $510,000 / $600,000 = 85%. Now suppose the appraisal comes in at $580,000. Lenders use the lower value, so LTV = $510,000 / $580,000 = 87.9%. To get back to 85% you would need a loan of 0.85 x $580,000 = $493,000, meaning $17,000 more cash at closing.

How LTV is used

• Down payment: 95% LTV means 5% down; 80% LTV means 20% down.
• Mortgage insurance: conventional loans above 80% LTV carry PMI.
• Pricing: lenders adjust rate and fees by LTV bands. Rates vary daily; call for today's pricing.
• Program limits: each program sets a maximum LTV by property type and occupancy.

LTV on a refinance

On a refinance there is no purchase price, so LTV is based on the appraised value alone. If your home has appreciated, your LTV has dropped, which may let you remove PMI or qualify for a cash-out refinance.

Streamline refinances (FHA and VA IRRRL) often skip the appraisal entirely, so LTV is not recalculated.

In South Florida

South Florida has several LTV traps. Non-warrantable condos, condotels and foreign national loans usually carry lower maximum LTVs than a standard conventional loan. Appraisal gaps are common in bidding wars, and because LTV uses the lower of price or value, a low appraisal means more cash from you. On cash-out refinances, Florida's doc stamp and intangible taxes are charged on the new loan amount, so a higher LTV also means a higher tax bill at closing.