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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

# Loan-To-Value (LTV) Ratio: What It Is and Why It Matters

Updated on:
Content was accurate at the time of publication.

A loan-to-value (LTV) ratio is a number that compares how much you’re borrowing to your home’s value. The higher your LTV ratio, the more risky your loan will look to a lender — and the more expensive it will likely be for you.

Lenders use your LTV ratio to determine your interest rate, monthly payment, loan amount and whether you’ll need to pay for private mortgage insurance. Improving your LTV can save you a lot of money, and we’ll cover some simple ways to do so.

An LTV ratio is a number — expressed as a percentage — that compares two things: your mortgage size and the value of the home you’re buying or refinancing.

Lenders use LTV ratios to gauge a loan’s potential risk. In general, the higher the LTV ratio, the more likely it is that the borrower will go into mortgage default and the lender will lose money. That’s why loans with higher LTVs tend to cost more — lenders need to compensate for this increased risk. It’s also why lenders set a cap on how high your LTV can go.

### Formula to calculate loan-to-value ratio

LTV ratio = Loan amount ÷ Home value*

*Home value is your home’s purchase price or appraised value, whichever is lower.

### Calculating LTV yourself by hand

You can calculate LTV yourself by following these easy steps:

1. Divide the amount you’re borrowing by your home’s price or appraised value.
2. Then, convert the resulting decimal into a percentage by moving the decimal two places to the right (multiplying by 100).

For example: If you’re buying a house for \$400,000 and making a 10% down payment, you’ll need a loan for \$360,000. To calculate the LTV ratio on that loan:

\$360,000 ÷ \$400,000 = 0.90
= 90% LTV ratio
Use a mortgage calculator to estimate your monthly payment with your new loan amount.

### Finding home equity LTV

When you’re taking out a second mortgage, like a home equity loan or home equity line of credit (HELOC), lenders typically calculate a “combined” loan-to-value ratio (CLTV) that encompasses both loans. Learn more about CLTV and view an example below.

You’re likely to spot references to a “combined-loan-to-value ratio” (CLTV) if you’re taking out a home equity loan or HELOC. The term refers to the fact that lenders typically combine the loan balances on both your first mortgage and the home equity product you’re applying for to come up with a CLTV ratio to secure against your home.

### How to calculate a combined LTV ratio

To calculate CLTV, follow these steps:

2. Divide that amount by your home’s value.

For example: Let’s say you have a \$400,000 home and \$300,000 first mortgage balance, and you’re looking to take out a \$20,000 home equity loan.

\$300,000 + \$20,000 = \$320,000
\$320,000 ÷ \$400,000 = 0.80 or 80% CLTV

A “high-LTV” loan means you’re borrowing more and making a smaller down payment.

It also means:

Your mortgage payment will be higher. Borrowing more money means a higher monthly mortgage payment.

It’s more difficult to qualify. Higher monthly payments need more income and assets to qualify.

You may need more cash on hand. You may need to prove you have enough mortgage reserves to cover a few months’ worth of payments.

You may have to pay for private mortgage insurance (PMI). If you don’t have at least a 20% down payment, conventional lenders will charge PMI premiums, which can be costly.

A “low-LTV” loan means you’re borrowing less and making a bigger down payment.

It also means:

Your interest rate may be lower. Lenders reward lower-risk borrowers with lower interest rates.

Your mortgage payment will be lower. The less you borrow, and the lower your interest rate, the more affordable your payments.

You may qualify for a property inspection waiver (PIW). LTV is usually the deciding factor when it comes to either getting an appraisal waiver or having to pay for a home appraisal.

You may be able to skip some loan costs like private mortgage insurance.

Most lenders publish the maximum LTV ratio they’ll allow for each mortgage program they offer. Here are LTV ratio limits for the most common loan types used to buy or refinance a single-family home:

Loan programLoan purposeMaximum LTV
ConventionalPurchase (fixed rate)97%
Rate-and-term refinance97%
Cash-out refinance80%
FHAPurchase96.50%
Rate-and-term refinance97.75%
Cash-out refinance80%
VAPurchase100%
Rate-and-term refinance100%
Cash-out refinance90%
USDAPurchase100%
Rate-and-term refinance100%
Cash-out refinanceNot allowed

Your lender may limit you to a lower LTV ratio than the ones listed here if you’re buying or refinancing a rental property, a two- to four-unit home or a second home (also known as a vacation home).

### When you can exceed LTV limits

You may be able to borrow more than the limits listed above if:

You won’t need to deal with LTV ratio restrictions if you’re eligible for one of the following loan programs:

FHA streamline loanIf you already have an FHA loan insured by the Federal Housing Administration and want to refinance, you may qualify for an FHA streamline loan, which doesn’t require your home’s value to be verified.

See today’s FHA refinance rates and compare offers.

VA IRRRLMilitary borrowers can refinance without an LTV ratio calculation if they already have a VA loan backed by the U.S. Department of Veterans Affairs and qualify for an interest rate reduction refinance loan (IRRRL).

See today’s VA refinance loan rates and compare offers.

USDA streamline loanBorrowers who took out a USDA loan guaranteed by the U.S. Department of Agriculture can refinance with a USDA streamline loan that doesn’t require either a home appraisal or an LTV ratio limit.

1. Ask for a cash gift to help with your down payment. A friend, family member or employer may be able to gift funds to use toward your down payment amount and closing costs.
2. Make extra payments on your principal. Your LTV ratio drops with every mortgage payment. If you make even one extra payment each year, you’ll lower your LTV ratio faster.
3. Pick a shorter-term loan. If your budget can handle a higher monthly payment, a 15-year fixed-rate mortgage will lower your LTV ratio more quickly than a 30-year loan.
4. Buy a less expensive home. Choosing a home at the lower end of your down payment budget might help you avoid a high-LTV ratio loan.