Your loan-to-value ratio is the share of a property’s appraised value that you’re financing with a mortgage, written as a percentage. Divide the loan amount by the appraised value and multiply by 100: borrow $240,000 against a home appraised at $300,000 and your LTV is 80 percent. Lenders lean on this one number more than almost any other to decide your interest rate, whether you’ll owe mortgage insurance, and which loan programs are open to you.
What the Number Tells a Lender
LTV answers a simple question: for every dollar the home is worth, how many cents belong to the bank? At 90 percent LTV, the lender has funded 90 cents of each dollar and you’ve covered the other 10. The lower your LTV, the more of your own money sits in the property, and the less a lender stands to lose if values drop or payments stop. That’s why lower-LTV borrowers get better pricing and higher-LTV borrowers face extra costs, insurance requirements, and program caps.
How to Calculate Your LTV
The formula is loan amount ÷ appraised value × 100. You need two figures to run it.
The loan amount is what you’re actually borrowing, which appears on the Loan Estimate your lender provides after you apply.
The appraised value comes from a licensed appraiser who evaluates the property independently of your purchase contract. This matters because lenders use the lower of the appraised value and the purchase price. Agree to pay $320,000 for a house that appraises at $300,000 and the lender runs your LTV against $300,000, not against what you offered.
When the Appraisal Comes In Low
A low appraisal is one of the fastest ways to find yourself with an LTV you didn’t plan for. Say you offered $320,000 with 10 percent down ($32,000), expecting to borrow $288,000 at a 90 percent LTV. If the appraisal lands at $300,000, your LTV becomes $288,000 ÷ $300,000, or 96 percent. That may blow past your program’s cap or add significant cost.
You generally have three practical responses. Negotiate the purchase price down to the appraised value. Increase your down payment to close the gap. Or, if your contract includes an appraisal contingency, walk away. There’s also a formal challenge available on FHA loans: HUD requires lenders to offer a reconsideration of value, at no charge to you, so you can submit comparable sales you believe the appraiser missed.
Maximum LTV by Loan Program
Every mortgage program caps how high your LTV can go on a purchase. The ceilings differ because each program absorbs risk differently.
- Conventional loans backed by Fannie Mae or Freddie Mac allow up to 97 percent LTV on a one-unit primary residence, which translates to as little as 3 percent down. Investment properties and multi-unit homes face tighter limits.
- FHA loans allow up to 96.5 percent LTV (3.5 percent down) with a credit score of 580 or higher. Scores between 500 and 579 cap out at 90 percent LTV.
- VA loans allow 100 percent financing for eligible veterans and service members, with no down payment and no private mortgage insurance, though borrowers pay a one-time VA funding fee instead.1U.S. Department of Veterans Affairs. VA Home Loan Entitlement and Limits2U.S. Department of Veterans Affairs. VA Purchase Loan
- USDA Rural Development loans also allow 100 percent financing on eligible rural and suburban properties, and the LTV can actually exceed 100 percent when the USDA guarantee fee is rolled into the loan balance.3U.S. Department of Agriculture. USDA Rural Development Chapter 7 – Loan Terms and Conditions
How LTV Changes Your Interest Rate
LTV doesn’t only decide whether you qualify. It also moves what the loan costs. Conventional lenders apply loan-level price adjustments, which are percentage-based fees layered onto your rate or charged as upfront points based on risk factors including credit score and LTV.
The pattern is straightforward. A borrower at 60 percent LTV might see no adjustment at all for that factor. A borrower at 95 percent LTV can see an adjustment that adds a meaningful fraction to the rate. These stack with other risk factors, so a high LTV combined with a middling credit score gets hit from two sides. A few thousand more dollars at closing can repay itself many times over in interest savings across the life of the loan.
Private Mortgage Insurance and the 80 Percent Line
On conventional loans, crossing 80 percent LTV triggers private mortgage insurance. PMI protects the lender if you default, and you pay the premium as part of your monthly mortgage payment.4Consumer Financial Protection Bureau. What Is Private Mortgage Insurance Annual premiums generally run from about 0.5 percent to 1.5 percent of the original loan amount, depending on your credit score, LTV, and loan size.5Fannie Mae. What to Know About Private Mortgage Insurance On a $300,000 loan, that works out to roughly $125 to $375 a month.
PMI isn’t permanent. Federal law gives you two paths to get rid of it. You can submit a written request to your servicer once your loan balance reaches 80 percent of the home’s original value, as long as you have a good payment history and no subordinate liens. The lender must also cancel PMI automatically when your balance is first scheduled to reach 78 percent of original value, provided you’re current on payments.6Consumer Financial Protection Bureau. CFPB Consumer Laws and Regulations HPA – Homeowners Protection Act (PMI Cancellation Act) If neither trigger hits earlier, PMI must drop off no later than the midpoint of your loan’s amortization period.7Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
Pay attention to the phrase “original value,” which means the lesser of the purchase price or the appraisal at the time you took out the loan. Appreciation doesn’t speed up the automatic termination schedule. You can ask for early cancellation based on current value, but the lender will usually require a new appraisal at your expense and will generally want current-value LTV at 80 percent or below.
FHA loans don’t use PMI. They charge a mortgage insurance premium, and on most FHA loans originated today with less than 10 percent down, the premium lasts for the life of the loan. The usual way out is to refinance into a conventional mortgage once you have enough equity.
Combined Loan-to-Value When There’s a Second Loan
If more than one loan is secured by the same property, lenders also look at the combined loan-to-value ratio. CLTV adds together the first mortgage, the drawn balance of any home equity line of credit, and any other subordinate liens, then divides by the property’s value.8Fannie Mae. Combined Loan-to-Value (CLTV) Ratios
Home worth $400,000, first mortgage of $280,000, HELOC balance of $40,000: your CLTV is $320,000 ÷ $400,000, or 80 percent. Fannie Mae generally caps CLTV at 97 percent for a one-unit primary residence purchase and 80 percent for a cash-out refinance, with a Community Seconds program that can push the limit to 105 percent in certain affordable housing scenarios.9Fannie Mae. Eligibility Matrix CLTV matters most when you’re applying for a second mortgage or HELOC, because the lender behind the junior lien wants to see your total debt against the home.
Cash-Out Refinance Limits Are Tighter
Pulling equity out through a cash-out refinance brings stricter LTV caps than a purchase, because you’re adding debt against a property you already own. As of April 2026, Fannie Mae’s conventional cash-out refinance limits are:9Fannie Mae. Eligibility Matrix
- Primary residence, one unit: 80 percent maximum LTV
- Primary residence, two to four units: 75 percent
- Second home, one unit: 75 percent
- Investment property, one unit: 75 percent
- Investment property, two to four units: 70 percent
Put numbers to it: a $400,000 home on a primary residence cash-out tops out at a $320,000 balance after refinance. With a current $200,000 mortgage, you could access up to $120,000 in cash before closing costs.
When LTV Goes Above 100 Percent
An LTV over 100 percent means you owe more than the home is worth, often called being underwater or holding negative equity. It usually happens when property values fall after you buy, though financing closing costs or guarantee fees into the balance can also push you past the line.
Being underwater creates real problems. Refinancing is hard because few lenders will approve a loan that exceeds the collateral’s value. Selling requires either bringing cash to closing to cover the shortfall or negotiating a short sale where the lender accepts less than the full balance. Walking away carries serious consequences, including possible liability for the remaining debt and lasting credit damage.