If you've started looking into mortgages, you've probably come across the term "Loan-to-Value Ratio" or LTV. It might sound like just another piece of mortgage jargon, but it plays a huge role in your home financing journey.
Let’s break it down—what it is, why it matters, and how it impacts your options as a buyer, homeowner, or investor.
The Loan-to-Value Ratio (LTV) is a simple formula lenders use to assess risk. It compares the amount of the loan you're taking out to the appraised value of the home.
Here’s the basic formula:
The Loan-to-Value ratio for a Purchase = loan amount ÷ purchase price or appraised value (whichever is lower).
So, if you're buying a home appraised at $400,000 and borrowing $320,000, your LTV is:
($320,000 ÷ $400,000) × 100 = 80%
Why does this matter? Because lenders use this percentage to evaluate how much equity you have—and that equity is a key factor in their risk assessment.
A lower LTV means you're borrowing less relative to the property's value. That usually signals lower risk for the lender. More equity means if things go sideways, there's a better chance of recouping the loan amount.
Lenders often have maximum LTV thresholds depending on the loan program. For example, conventional loans might cap LTV at a certain percentage, while FHA or VA loans may allow higher LTVs under specific conditions.
If your LTV is above a certain level, you may need mortgage insurance (like PMI for conventional loans). This protects the lender—not you—in case of default. The higher the LTV, the more likely insurance will be required.
Higher LTVs can sometimes mean higher costs. While we won’t talk rates here (compliance matters!), just know that lenders often factor LTV into pricing decisions. It's one of the many variables they consider.
If you're looking to reduce your LTV to potentially open more options, here are a few strategies:
LTV isn’t just for purchases. If you're refinancing, lenders will also evaluate your current LTV. This helps determine what loan types you may qualify for and whether mortgage insurance is still needed.
The Loan-to-Value ratio for a Refinance = loan amount ÷ appraised home value.
Some refinance programs even allow for high-LTV scenarios, depending on loan type and borrower profile. That’s why it’s worth connecting with a loan expert to explore your options.
I recently worked with a couple who thought they couldn’t move forward because they didn’t have a massive down payment. But once we ran the numbers, their LTV was within the allowable range for a first-time buyer program. They were thrilled—and surprised.
The takeaway? You don’t need to have it all figured out. You just need someone who can walk through the math with you.
Your Loan-to-Value Ratio isn’t just a number—it’s a key that can unlock certain loan programs, eliminate mortgage insurance sooner, or give you better terms.
Understanding how it works gives you more control in the mortgage process. Whether you’re buying your first home or thinking about refinancing, LTV is one of those behind-the-scenes factors that’s worth paying attention to.
Have questions about how your LTV might impact your next move? Talk with a Ruoff Mortgage loan officer.
At Ruoff Mortgage, we understand that buying a home is one of life’s biggest moments – not just as a financial decision, but a personal one. For more than 41 years, we’ve proudly helped families turn their dreams into reality. From our roots in northeast Indiana to now serving homebuyers throughout the Midwest, our focus has stayed the same: delivering exceptional service rooted in care, speed, and community. With an average 15-day clear-to-close time, our team is here to make your journey to homeownership as smooth and stress-free as possible. When you're ready to take the next step, we’re here to walk with you, every step of the way.