What is LTV?

Nicole Madison
Nicole Madison

Loan-to-value (LTV) is a ratio that depicts the relationship of a loan amount with the value of a property. This ratio is obtained by dividing the amount of a loan by either the sale price of the property or the property’s appraised value. The lower of the two amounts is used.

The purpose of establishing the loan to value ratio in the purchase of a home is to protect the lender from lending more money than the property is worth.
The purpose of establishing the loan to value ratio in the purchase of a home is to protect the lender from lending more money than the property is worth.

LTV is one of the many factors used by lenders in determining whether or not to approve a mortgage. LTV is expresses as a percentage. For example, a loan of $50,000 on a $100,000 home has an LTV of 50 percent. A mortgage can be said to have a high LTV when the amount of money lent is high in relation to the down payment of the borrower or the equity held in the property. For example, if a borrower provides a down payment of five percent and the mortgaged amount is 95 percent of the sale price, the loan is considered to have a high LTV.

Lenders typically view loans with high LTVs as more risky than those in which borrowers offer more substantial down payments or have larger amounts of equity. From a lender’s point of view, a borrower with less money invested in a home has less to lose by defaulting on a loan than an individual who has given a larger down payment or who has significant equity in a property. Often, lenders require borrowers of loans with high LTVs to obtain mortgage insurance. This type of insurance helps to protect the interests of the lender if the borrower defaults on the loan.

When the borrower of a high LTV loan is required to purchase mortgage insurance, the total cost of the mortgage is increased. High LTV loans often carry higher interest rates as well. In some cases, borrowers may find it more difficult to qualify for high LTV loans than for loans with lower LTVs.

An appraisal can play an important role in any type of mortgage loan. With a high LTV loan, the appraised value is particularly important, as it can place the transaction at risk. For example, if a buyer has a five percent down payment on a $200,000 home, he or she needs a loan in the amount of $190,000. If a lender agrees to provide a loan for 95 percent of the appraised value and the property appraisal comes in at only $195,000, the loan amount would be just $185,250. That’s $4,750 less than the borrower needs to close on the property.

If a property appraises for less than the amount of loan money the buyer needs, the entire real-estate purchase may fall apart. Sometimes, however, a borrower may be able to move the transaction over to a different, more lenient lender in time to keep the deal from falling through. Using a mortgage broker may make moving to a new lender easier, as brokers typically have numerous lender contacts and can often help borrowers switch lenders fairly quickly.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a wiseGEEK writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

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Discussion Comments


We have a similar scenario to bluebird69 post 3, except we have not closed on the house. The contract purchase price is $253,000 and was agreed upon before the appraisal came in at $350,000 which is a LTV of 72 percent. At closing this Friday, we are to sign to pay for a monthly PMI on the loan. Is there a regulation requiring us to pay PMI on a loan that the value of the home is 138 percent higher than the loan amount?


To - bluebird69: You should refinance so you don't have to continue paying it. Usually PMI is only required if the LTV is higher than 80 percent. I've never heard of anyone paying PMI on a 75 percent ltv. I think you may be getting screwed.


The homeowners protection act requires PMI to be dropped at 78 percent LTV, but at 80 percent you can request it to be dropped and they have to if you've been making good on your note.

I would advise you contact their primary federal regulatory (if it's a true mortgage company not working under a Bank, then that would be the FTC) and submitting a complaint.

You may also save and retrieve money due to you by hiring attorney for the amount you have been required to "overpay".


In regard to LTV. We purchased a house for $73,000 and borrowed $73,000, but the house appraised for $102,000--AN LTV of 72 percent. The mortgage company requires us to pay $60 per month PMI because they go by the ratio of the loan balance to the contract sale price NOT the actual value of the property.

We purchased it from a neighbor of 25 years whose wife was dying of cancer. This was how much he owed and he just wanted out from under it. The sale price was established before the appraisal was done.

We have not been late on any payments since we got the loan two years ago. Any ideas if there are any arguments we can use to convince the mortgage holder to drop the PMI. Otherwise, we'll be wasting $8,000 over the next 10 years or so for PMI, when we could be investing that money in improving the house.


most stores will honor the price listed on the tag or on the shelf. if this store won't honor their own advertised prices, i would take my business elsewhere. i once saw a study done where they discovered that a high percentage of items in most grocery stores actually rung up higher than what was labeled on the shelf. unfortunately, this puts the onus on the customer to watch each and ever item ring up, and to challenge incorrect prices. no fun!


How do you feel about hard money lenders who have access to private funds up to 10 million.

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