Loan-to-Value (LTV)
Definition
Loan-to-value is the mortgage amount expressed as a percentage of the property's value, and it is the main measure lenders use to price risk.
How it works
A $400,000 mortgage on a $500,000 home is 80% LTV. The lower the ratio, the more of your own money is at stake and the safer the loan looks to the lender.
Key thresholds drive what is possible. Above 80% LTV the mortgage must be insured. At or below 80% it is conventional. Refinances are capped at 80%, standalone HELOCs at 65%, and most rental and commercial financing sits at 75% or lower.
LTV is calculated on the lender's appraised value, not your purchase price or your own estimate. An appraisal that comes in below the offer price raises the effective LTV and can require more cash at closing.
Quick facts
- Above 80% LTV requires mortgage default insurance.
- Refinances cap at 80%; standalone HELOCs at 65%.
- Based on appraised value, not the asking price.
Put this into practice
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