Loan-to-value (LTV) compares the amount you’re borrowing to the home’s value. It’s calculated by dividing the loan amount by the home’s appraised value or purchase price, whichever is lower.
For example, if you put down 5%, your LTV is 95%. If you put down 20%, your LTV is 80%.
Lenders use LTV to assess risk — the more equity a buyer has in the property upfront (a lower LTV), the less risk the lender takes on. LTV also affects whether private mortgage insurance (PMI) is required on a conventional loan; typically, an LTV above 80% means MI (mortgage insurance) is required until enough equity builds up to remove it.
LTV is also sometimes referred to as the Loan-to-Value Ratio. The terms are used interchangeably.
Different loan types have different LTV requirements