Loan-to-value ratio (LTV) is your loan amount divided by the home's value expressed as a percentage. It is one of the most important factors lenders use to assess risk.
A lower LTV means less risk for the lender which typically results in a lower interest rate and better loan terms. The key threshold is 80% LTV which eliminates the need for PMI on conventional loans.
Example: on a 00K home with 0K down your LTV is 80%. That 80% threshold is the sweet spot for avoiding PMI and getting the best rates.
How to Calculate
LTV = Loan amount / Property value x 100. On a 50K loan with a 00K home: 50K / 00K = 83.3% LTV. On a 00K loan same home: 66.7% LTV. The lower the LTV the better.
Impact on Rate
Each LTV tier has different pricing. 80% LTV gets the best rates. 80.01-85% LTV rates increase slightly. 85.01-90% higher rates plus PMI. 90.01-95% highest rates and PMI. 95.01-97% maximum for conventional.
PMI Threshold
80% LTV is the threshold for eliminating PMI on conventional loans. At exactly 80% or below you pay no PMI. Above 80% you pay PMI until your LTV reaches 78% through amortization or appreciation.
How to Improve LTV
To improve LTV: increase your down payment (every 5% helps), buy a less expensive home, or wait for the property to appreciate. Even a small increase in down payment can improve your rate tier.
LTV Tiers
LTV tiers for conventional loans: 80% or less (best rates no PMI), 80-85% (good rates PMI required), 85-90% (higher rates PMI), 90-95% (higher rates PMI), 95-97% (highest rates PMI not all lenders).
By Loan Type
FHA loans allow up to 96.5% LTV. VA loans allow 100% LTV (zero down). USDA allows 100% LTV. Conventional loans max at 97% LTV. Jumbo loans typically require 20% down (80% LTV max).