Loan-to-value ratio (LTV) is the percentage of a home's appraised value that you're borrowing. You calculate it by dividing your loan amount by the home's value. An LTV of 80% means you're borrowing 80% and have 20% equity — the threshold at which conventional PMI can be avoided.
Loan-to-value ratio (LTV) is the single most important measure of how much equity you have in your home relative to what you owe. Lenders use it to set rates, decide whether mortgage insurance is required, and determine which loan programs you qualify for. The formula is simple: LTV = loan balance ÷ appraised home value × 100.
You buy a $400,000 home with $80,000 down (20%). Your loan is $320,000. LTV = $320,000 ÷ $400,000 = 80%. If home values rise and your home is later appraised at $440,000, your LTV drops to 72.7% on the same $320,000 balance — which may qualify you for a better refinance rate.
At 80% LTV (20% equity), conventional borrowers avoid PMI entirely. Below 80% LTV, lenders view the loan as lower risk and may offer better rates. Above 80% LTV, PMI is typically required on conventional loans. The CFPB explains that a lower LTV generally means lower mortgage costs.
Fannie Mae's Loan-Level Price Adjustments (LLPAs) apply rate surcharges based on LTV and credit score combined. A higher LTV typically means a higher rate. Borrowers at 95% LTV often pay meaningfully more than those at 80% LTV, even with the same credit score.
HELOCs and home equity loans are also priced based on combined LTV (CLTV) — the sum of your first mortgage and the new loan divided by the home's value. Most lenders cap CLTV at 85%–90%. If your first mortgage is $240,000 on a $400,000 home (60% LTV), you may be able to borrow up to $100,000 in a HELOC and stay under an 85% CLTV cap.
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