LTV (Loan-to-Value) Ratio Calculator
Your LTV Ratio is:
0%
What is the Loan-to-Value (LTV) Ratio?
The Loan-to-Value (LTV) ratio is a critical financial metric used by lenders to assess the risk of a mortgage or loan. It compares the amount of the loan you are seeking to the appraised value of the property you intend to buy or refinance.
How to Calculate LTV
The formula for calculating LTV is straightforward:
LTV Ratio = (Total Loan Amount / Appraised Property Value) × 100
Why Your LTV Ratio Matters
Lenders use the LTV ratio to determine several factors regarding your loan application:
- Interest Rates: Lower LTV ratios (usually 80% or below) typically qualify for the lowest interest rates.
- Private Mortgage Insurance (PMI): If your LTV is higher than 80% on a conventional loan, you will likely be required to pay for PMI, which increases your monthly payment.
- Approval Likelihood: High LTV ratios (above 95%) are considered high-risk and may require specific government-backed programs like FHA or VA loans.
- Equity: A lower LTV means you have more equity in your home from day one.
Realistic Example:
If you are buying a home appraised at $500,000 and you make a down payment of $100,000, your loan amount is $400,000.
Calculation: ($400,000 / $500,000) = 0.80.
LTV Ratio = 80%.
If you are buying a home appraised at $500,000 and you make a down payment of $100,000, your loan amount is $400,000.
Calculation: ($400,000 / $500,000) = 0.80.
LTV Ratio = 80%.
Understanding the Results
80% or Lower: This is considered the "sweet spot" for conventional mortgages. It avoids PMI and usually secures the best terms.
81% to 95%: Standard for many first-time homebuyers. You will likely pay PMI, but many lenders offer programs for this range.
Above 95%: These are high-LTV loans. While possible through FHA or USDA programs, they often come with higher long-term costs and stricter insurance requirements.