Finance & MortgagesAbbreviation: LTV

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Abbreviation: LTV·Pronounced: “L-T-V”

Full Definition

The loan-to-value ratio (LTV) measures how much of a property's value is financed by a mortgage. It is calculated by dividing the loan amount by the lesser of the purchase price or the appraised value, then multiplying by 100. LTV is a primary factor in mortgage underwriting — higher LTV means higher lender risk. Conventional loans with LTV above 80% typically require private mortgage insurance (PMI). FHA loans allow LTV up to 96.5% (3.5% down payment). VA and USDA loans allow 100% LTV. A lower LTV generally means better interest rates and lower risk of default.

Real-World Example

A buyer purchases a $400,000 home with a $320,000 loan. LTV = $320,000 ÷ $400,000 = 80%. At exactly 80% LTV, PMI is not required.

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How Loan-to-Value Ratio (LTV) Appears on the Real Estate Exam

Common question types, tested concepts, and what to watch out for

LTV = Loan Amount ÷ Property Value. An 80% LTV means 20% equity / down payment. Know that lenders use the LOWER of purchase price or appraised value when calculating LTV.