Loan-to-value (LTV) ratio measures how much of a property’s value is financed by a mortgage. To calculate it, divide the loan amount by the property value and multiply by 100:

[
\text{LTV}=\frac{\text{Loan Amount}}{\text{Property Value}}\times 100
]

A lower LTV generally means more homeowner equity and may help you qualify for better loan terms or avoid private mortgage insurance (PMI).

What Is Loan-to-Value Ratio?

LTV is a percentage used by mortgage lenders to evaluate lending risk. It compares the amount borrowed with the property’s value. For example, a borrower who makes a 20% down payment finances the remaining 80% of the purchase price, producing an LTV of 80%.

Lenders may use LTV to help determine:

• Whether to approve a mortgage
• How much a borrower can finance
• The interest rate offered
• Whether mortgage insurance is required
• Whether a refinance or home-equity loan fits program guidelines

Generally, a higher LTV indicates that the borrower has less equity invested in the property. A lower LTV indicates a larger equity cushion if the property’s value declines.

The Basic LTV Formula

Use this formula:

[
\text{LTV Percentage}=\left(\frac{\text{Mortgage Loan Amount}}{\text{Property Value}}\right)\times 100
]

Example

Suppose:

• Purchase price: $400,000
• Down payment: $80,000
• Mortgage loan: $320,000
• Property value: $400,000

The calculation is:

[
\frac{320{,}000}{400{,}000}\times 100=80\%
]

The LTV is 80%, and the buyer has 20% equity at closing.

How to Calculate LTV Step by Step

1. Determine the loan amount

Start with the amount you intend to borrow. For a purchase, this is usually the purchase price minus the down payment, adjusted for any costs or loan features that are financed.

For example:

• Purchase price: $350,000
• Down payment: $35,000
• Base loan amount: $315,000

Some loan programs may include financed mortgage insurance, discount points, or other eligible charges in the amount used for underwriting. Ask the lender which loan amount applies to the program.

2. Determine the property value

For a home purchase, the relevant value may not always be the contract price. Many conventional underwriting calculations use the lower of the purchase price or the appraised value.

For example:

• Contract price: $400,000
• Appraised value: $390,000
• Value used for underwriting: $390,000

Using the lower value protects the lender from financing a property at a value unsupported by the appraisal.

For a refinance, lenders commonly use the current appraised value or another approved valuation method. The lender will determine which valuation method and amount apply.

3. Divide the loan amount by the property value

If the loan amount is $315,000 and the property value is $350,000:

[
\frac{315{,}000}{350{,}000}=0.90
]

4. Convert the result to a percentage

Multiply by 100:

[
0.90\times 100=90\%
]

The LTV is 90%.

Calculating LTV From a Down Payment

You can often estimate LTV by subtracting the down-payment percentage from 100%.

• 5% down payment = approximately 95% LTV
• 10% down payment = approximately 90% LTV
• 15% down payment = approximately 85% LTV
• 20% down payment = approximately 80% LTV
• 25% down payment = approximately 75% LTV

This shortcut works when the loan amount is simply the purchase price minus the down payment and no costs are financed.

A buyer purchases a $500,000 home with a 10% down payment:

• Down payment: $50,000
• Loan amount: $450,000
• LTV: $450,000 ÷ $500,000 = 90%

The buyer’s estimated LTV is 90%.

What Happens When the Appraisal Is Lower Than the Purchase Price?

A low appraisal can increase the effective LTV because the loan is compared with the lower property value.

• Contract price: $400,000
• Planned down payment: $80,000
• Loan amount: $320,000
• Appraised value: $380,000

If the lender uses the lower appraised value:

[
\frac{320{,}000}{380{,}000}\times 100=84.21\%
]

The resulting LTV is approximately 84.21%, not 80%.

To achieve an 80% LTV based on a $380,000 value, the maximum loan would be:

[
380{,}000\times 80\%=304{,}000
]

The buyer would need to provide enough additional funds to reduce the loan from $320,000 to $304,000, assuming the lender’s underwriting rules require an 80% LTV.

Possible responses to a low appraisal include:

• Bringing additional cash to closing
• Negotiating a lower purchase price
• Challenging the appraisal with relevant comparable sales
• Requesting a reconsideration of value
• Choosing a different loan structure
• Proceeding with a higher LTV, if the lender and loan program permit it

LTV and Private Mortgage Insurance

For many conventional mortgages, an LTV above 80% may result in PMI. PMI protects the lender—not the borrower—and adds to the borrower’s housing cost.

PMI requirements and pricing vary based on factors such as:

• LTV
• Credit score
• Loan term
• Loan type
• Occupancy
• Property type
• Loan amount
• Mortgage insurer guidelines

An 80% LTV is an important benchmark because reaching that level may help a borrower avoid PMI when purchasing a home. Borrowers should not assume that making exactly 20% down is always the best financial choice, however. Using savings for the down payment can reduce cash available for closing costs, repairs, reserves, and emergencies.

Some loans with lower down-payment requirements may include different forms of mortgage insurance or guarantee fees. Compare the total cost of each loan rather than focusing only on the down payment.

LTV Versus Equity

LTV and equity are closely related but measure opposite concepts.

If a home is worth $400,000 and the mortgage balance is $300,000:

• LTV: $300,000 ÷ $400,000 = 75%
• Equity: $400,000 − $300,000 = $100,000
• Equity percentage: 25%

When there is only one mortgage, estimated equity percentage is generally:

[
100\%-\text{LTV}= \text{Equity Percentage}
]

This calculation does not account for selling expenses, liens, or other obligations attached to the property.

LTV, CLTV, and HCLTV

A standard LTV calculation considers the first mortgage. Other ratios account for additional liens.

LTV

LTV measures the first mortgage against the property value:

[
\text{LTV}=\frac{\text{First Mortgage}}{\text{Property Value}}\times 100
]

Combined loan-to-value ratio (CLTV)

CLTV includes the first mortgage plus other loans secured by the property, such as a home-equity loan or home-equity line of credit:

[
\text{CLTV}=\frac{\text{First Mortgage}+\text{Other Property Loans}}{\text{Property Value}}\times 100
]

• First mortgage: $280,000
• Home-equity loan: $40,000
• Property value: $400,000

[
\frac{280{,}000+40{,}000}{400{,}000}\times 100=80\%
]

The LTV is 70%, but the CLTV is 80%.

Some underwriting systems also consider the full amount available under a home-equity line of credit, even if the borrower has not drawn the entire balance. Ask the lender whether the calculation uses the outstanding balance or the credit line limit.

LTV for Refinancing

For a refinance, calculate LTV using the new loan amount and the property value accepted by the lender.

• Current property value: $450,000
• Existing mortgage payoff: $300,000
• New refinance loan: $315,000

[
\frac{315{,}000}{450{,}000}\times 100=70\%
]

The refinance LTV is 70%.

A cash-out refinance may have a higher LTV because the new loan includes money taken from the property’s equity. The maximum permitted LTV depends on the lender, loan type, occupancy, credit profile, property type, and other underwriting factors.

Remember to include eligible financed closing costs or other financed amounts when determining the actual loan amount used in the lender’s calculation.

Why LTV Matters to Buyers

LTV can affect the cost and flexibility of a mortgage in several ways.

Mortgage insurance

A higher LTV may trigger PMI or another form of mortgage insurance, increasing the monthly payment.

Interest rate and pricing

Lenders commonly consider higher-LTV loans riskier. A higher LTV can influence the interest rate, loan pricing, or required adjustments.

Cash required at closing

A lower target LTV generally requires a larger down payment. That may reduce monthly costs but also ties more cash up in the property.

Loan eligibility

Each mortgage program establishes its own underwriting limits. Fannie Mae notes that maximum allowable LTV can depend on the borrower’s credit profile, loan product, number of dwelling units, and occupancy status.

Access to equity

Homeowners may need a sufficiently low LTV to qualify for a home-equity loan, HELOC, or cash-out refinance. The lender may evaluate CLTV as well as LTV.

Common LTV Mistakes

Using the wrong property value

Do not automatically use the listing price, tax-assessed value, online estimate, or your own estimate. The lender may use an appraisal or another approved valuation method.

Forgetting financed amounts

Adding mortgage insurance, points, or eligible closing costs to the loan can increase the loan amount and therefore increase LTV.

Confusing LTV with down payment

A 10% down payment generally corresponds to a 90% LTV—not a 10% LTV.

Ignoring additional liens

A borrower may have a 75% first-mortgage LTV but a much higher CLTV after adding a HELOC or second mortgage.

Assuming every lender rounds the same way

Lender and investor systems may apply specific rounding rules. Fannie Mae’s published guidance, for example, describes truncating the calculation to two decimal places and then rounding up to the nearest whole percent for certain underwriting calculations.

Treating an estimate as an approval

A calculated LTV is only one part of mortgage underwriting. Lenders also review income, assets, credit history, debt-to-income ratio, property condition, occupancy, reserves, and documentation.

Practical Ways to Improve Your LTV

• Increase the down payment, while retaining adequate emergency savings.
• Compare the monthly cost with and without mortgage insurance.
• Pay down the mortgage principal over time.
• Avoid taking out a second mortgage unless the total borrowing cost makes sense.
• Improve the property only when the expected value or usefulness justifies the expense.
• Review recent comparable sales before purchasing or refinancing.
• Ask whether the lender accepts an appraisal waiver or automated valuation method.
• Request a written breakdown of the loan amount, property value, LTV, CLTV, mortgage insurance, and financed fees.
• Compare multiple loan estimates, including the total cash needed and five-year borrowing cost.

A Quick LTV Worksheet

Use the following worksheet before speaking with a lender:

• Property value used by the lender: $
• First mortgage amount: $
• Additional mortgage or HELOC balance: $
• First-mortgage LTV: first mortgage ÷ property value × 100 = %
• CLTV: total secured loans ÷ property value × 100 = %
• Estimated down payment: $
• Estimated PMI or other mortgage insurance: $ per month
• Cash remaining after closing: $

For buyers, a mortgage professional can confirm which value and loan amount apply to the selected program. For real estate professionals who want more structured training on financing concepts, transaction analysis, and client education, LeapRealEstate.com can be a useful learning resource and next step.

Final Takeaway

To calculate LTV, divide the mortgage amount by the lender-accepted property value and multiply by 100:

[
\text{LTV}=\frac{\text{Loan Amount}}{\text{Property Value}}\times 100
]

A $320,000 mortgage on a $400,000 property produces an 80% LTV. The result can affect mortgage insurance, pricing, eligibility, cash requirements, and refinancing options, so verify the calculation with the lender’s official figures before making a financing decision.

Authoritative Sources

• Consumer Financial Protection Bureau: What Is a Loan-to-Value Ratio and How Does It Relate to My Costs?
• Consumer Financial Protection Bureau: Mortgage Key Terms
• Fannie Mae Selling Guide: Loan-to-Value (LTV) Ratios
• Fannie Mae: Loan-to-Value Ratio Calculator
• Freddie Mac: PMI Handbook