Loan-to-Value Ratio (LTV)

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The Loan-to-Value Ratio (LTV) is a percentage that compares the amount you borrow to the appraised value or purchase price of the home, whichever is lower.

You calculate it by dividing the loan amount by the home's value. For example, borrowing $240,000 on a $300,000 home gives an LTV of 80 percent. A lower LTV means you have more equity and represents less risk to the lender, which can lead to better rates and help you avoid private mortgage insurance.

Lenders generally prefer an LTV of 80 percent or below for conventional loans, though some programs allow higher ratios. Your LTV also changes over time as you pay down the balance and the home's value shifts.

Related terms: Down Payment, Private Mortgage Insurance (PMI)