Figuring out your LTV ratio can help you predict how much mortgage you’ll qualify for. But it’s far from a guarantee.
What is a loan-to-value ratio?
A loan-to-value (LTV) ratio is the size of a mortgage loan compared to the value of a property expressed as a percentage. The higher your down payment is, the lower your LTV ratio will be.
How to calculate your loan-to-value ratio
You can find your LTV ratio by dividing the amount you’ll need to borrow to purchase a property by the property’s value.
For example, if you buy a property for $500,000 and need a loan amount of $400,000 to purchase it, your LTV will be 0.80, or 80% when expressed as a percentage.
What is the LTV ratio used for?
LTV ratios are important when it comes to getting a mortgage. Generally, the lower the ratio, the lower the risk you present to your lender.
Lower LTV ratios often qualify for cheaper interest rates. Generally, a loan of 80% or less is recommended, as borrowing more leads to more fees and charges and the possibility of higher interest rates.
If you have an LTV ratio above 80%, which means you put less than 20% down, you’ll likely need to take out private mortgage insurance (PMI).
Use your LTV ratio to determine your price range
You can use your down payment amount and your goal LTV ratio to help determine how much mortgage you can afford.
For example, let’s assume that you’ve saved up $35,000 to use as a down payment and you’re hoping to take out a mortgage with an LTV ratio that’s 80% or lower so you can avoid having to pay for private mortgage insurance. An 80% LTV ratio requires you to put 20% down, so that $35,000 needs to be 20% of the total cost of the home.
(Home price) x 0.20 = $35,000
$35,000 ÷ 0.20 = $175,000
In this example, you’ll need to choose a home that costs $175,000 or less to have an LTV ratio of 80% or higher. That would leave you with a mortgage of $140,000. You can use a mortgage calculator to figure out how much you’d need to pay each month for a mortgage of that size.
Is my LTV ratio permanent?
No. As you pay off your mortgage, your loan-to-value ratio decreased. Once you own at least 20% of your home, you can ask your lender to cancel your private mortgage insurance.
If you decide to refinance your home or take out a second mortgage in the future, your LTV ratio will be recalculated.
Compare mortgage lenders
Compare top brands by home loan type, state availability and credit score. Select See rates to provide the lender with basic property and financial details for personalized rates.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Your loan-to-value ratio affects your ability to qualify for mortgages and how much your monthly payment will be. But a lot of other factors affect your mortgage, too — like your income, your credit score and the mortgage provider you use. Compare mortgage providers to get a better idea of what you’ll pay for a home.
Frequently asked questions
More guides on Finder
Interfirst mortgage review
Learn about Interfirst’s $0-origination-fee mortgages.
What is a home equity loan and how does it work?
Also known as a second mortgage, this type of loan turns your home’s equity into a lump sum of cash.
Guaranteed Rate vs. Rocket Mortgage
How Guaranteed Rate and Rocket Mortgage stack up against each other.
Credible vs. SoFi
How Credible and SoFi stack up against each other.
SoFi vs. LendingTree
How SoFi and LendingTree stack up against each other.
New American Funding vs. Rocket Mortgage
How New American Funding and Rocket Mortgage stack up against each other.
SoFi vs. Rocket Mortgage
How SoFi and Rocket Mortgage stack up against each other.
Veterans First vs. Veterans United
How Veterans First and Veterans United stack up against each other.
Rocket Mortgage vs. Bank of America
Bank of America has more loan options, but Rocket Mortgage has left a better overall impression on customers. We compare the key features between these two established lenders.
Ask an Expert