Loan-to-Value Ratio (LTV)

The loan-to-value ratio is calculated by dividing the mortgage amount by the appraised property value. For example, if you borrow $320,000 on a home appraised at $400,000, your LTV is 80%. Lenders use LTV to assess risk and determine lending terms.

An LTV above 80% typically requires private mortgage insurance (PMI), which protects the lender if you default. PMI can cost 0.3% to 1.5% of the original loan amount annually. Once your LTV drops to 78% through payments or appreciation, you can request PMI removal.

Lower LTV ratios generally result in better interest rates and loan terms because the lender has more security. First-time homebuyer programs may allow LTVs up to 97%, while conventional loans typically prefer 80% or lower. For refinancing, many lenders require an LTV of 80% or less.