When you apply for a mortgage, one of the first things lenders calculate is your LTV ratio. It determines how much you can borrow, what rate you'll get, and whether you'll pay PMI.

Understanding LTV helps you structure deals that actually get financed—and on better terms.

What is LTV?

LTV (Loan-to-Value) ratio compares your loan amount to the property's value. It's expressed as a percentage.

LTV = (Loan Amount ÷ Property Value) × 100

Example:

• Property value: $400,000
• Loan amount: $320,000
• LTV: $320,000 ÷ $400,000 = 80%

An 80% LTV means you're borrowing 80% of the property's value and putting 20% down.

Why LTV Matters

To Lenders

LTV measures the lender's risk. If you default:

• Lower LTV = more equity cushion = lender more likely to recover their money
• Higher LTV = less cushion = higher risk of loss

To Borrowers

LTV affects:

• Loan approval: Higher LTV = harder to qualify
• Interest rate: Higher LTV = higher rate
• PMI requirement: Above 80% LTV typically requires PMI
• Loan programs available: Some programs have LTV limits

Common LTV Thresholds

Primary Residence

Investment Property

PMI: The 80% LTV Threshold

Private Mortgage Insurance (PMI) protects the lender if you default. It's required on most loans above 80% LTV.

PMI costs: 0.5-1.5% of loan amount annually

Ways to avoid/remove PMI:

• Put 20% down (80% LTV)
• Wait until you reach 80% LTV through paydown/appreciation
• Refinance when home value increases
• Request removal at 80% LTV (may require appraisal)

Key Takeaways

• LTV = Loan Amount ÷ Property Value
• Lower LTV = lower risk = better rates and terms
• 80% LTV is the magic number—above requires PMI
• Investment properties have stricter LTV limits (75-80% max)
• Appreciation can improve your LTV and refinancing options
• Always know your LTV before negotiating with lenders

LTV is one of the first numbers lenders calculate—and one you should know before they do. Understanding your LTV helps you structure deals that get approved and qualify for the best possible terms.