The loan-to-value (LTV) ratio is one of the most important numbers lenders use to evaluate your mortgage application. Knowing how to calculate your own LTV ratio helps you understand your borrowing power, anticipate loan terms, and improve your chances of approval. This guide explains what LTV is, why it matters, and how to calculate it with real-world examples.

What is an LTV ratio?

The loan-to-value (LTV) ratio is a percentage that shows how much of a property’s value you’re borrowing compared to how much equity you have. It’s a critical factor lenders use when deciding whether to approve a mortgage, refinance, or home equity loan.

For example, if you buy a home worth $300,000 and borrow $240,000, your LTV ratio is 80%. That means you’re borrowing 80% of the home’s value and putting 20% down.

Lenders prefer lower LTV ratios because they represent less risk. A borrower who has more equity in their property is less likely to default, and if they do, the lender has a better chance of recovering the loan amount through a sale.

Why LTV ratio matters

Before learning how to calculate LTV ratio, it’s important to understand why it’s so significant.

• Approval odds: A lower LTV ratio increases your chance of qualifying for a mortgage or refinance.
• Interest rates: Borrowers with lower LTV ratios typically qualify for lower rates.
• Mortgage insurance: Conventional borrowers with an LTV over 80% usually must pay private mortgage insurance (PMI). FHA and USDA loans also require mortgage insurance.
• Refinancing: Your current LTV ratio determines if you’re eligible for refinancing programs.

Knowing your LTV ratio gives you insight into how lenders view your application and what you can do to strengthen it.

How to calculate LTV ratio

The formula for calculating LTV is straightforward:

LTV ratio = (Loan Amount ÷ Appraised Property Value) × 100

Here’s the step-by-step process:

1. Find the total loan amount. This is the balance you plan to borrow or refinance.
2. Determine the appraised property value. Lenders use the professional appraisal, not necessarily the purchase price
3. Divide the loan amount by the property value.
4. Multiply the result by 100 to get a percentage.

Or, if you don’t want to do the math yourself, you can use our LTV ratio calculator. 

Example of calculating LTV ratio

Let’s say you’re buying a home for $400,000. You plan to make a $60,000 down payment and borrow $340,000.

1. Loan amount = $340,000
2. Appraised value = $400,000
3. $340,000 ÷ $400,000 = 0.85
4. 0.85 × 100 = 85%

Your LTV ratio is 85%. That means you’re borrowing 85% of the home’s value and putting 15% down.

If the home appraises for more than the purchase price, your LTV ratio will be lower, which can help you qualify for better loan terms. If the appraisal comes in lower, your LTV ratio will be higher, potentially affecting your loan approval or interest rate.

Ideal LTV ratios for different loan types

When you calculate LTV ratio, it’s helpful to know the thresholds lenders look for:

• Conventional loans: 80% or lower avoids private mortgage insurance. Some lenders allow up to 97% LTV with PMI.
• FHA loans: You can go up to 96.5%, meaning you only need to make a 3.5% down payment.
• VA loans: These loans often allow up to 100% financing, meaning no down payment.
• USDA loans: The USDA also allows 100% financing in eligible rural areas.

If your LTV is above 80% on a conventional loan, expect to pay for PMI until your ratio drops below that threshold.

LTV vs. CLTV vs. HCLTV

When comparing loan offers, you may come across related terms:

• LTV ratio: Based on a single mortgage compared to property value.
• CLTV (combined loan-to-value): Includes the balance of your first mortgage plus any second mortgages or home equity lines of credit.
• HCLTV (high combined loan-to-value): Used when you have a home equity line of credit and includes the maximum available credit, not just the drawn amount.

Understanding these variations is key, especially if you’re refinancing or borrowing against existing equity.

How to improve your LTV ratio

If you calculate LTV ratio and find it’s too high, don’t panic. You can take steps to lower it:

• Increase your down payment: Putting more money down upfront reduces the loan amount.
• Choose a less expensive property: A smaller purchase can bring your ratio into a healthier range.
• Pay down existing loans: Reducing your balance through extra payments improves your ratio over time.
• Wait for property appreciation: If your home’s value rises, your LTV ratio will naturally decrease.

Improving your LTV ratio can mean better loan offers, lower rates, and reduced insurance costs.

Common mistakes when calculating LTV ratio

Borrowers sometimes make errors when they calculate LTV ratio. Here are a few to avoid:

• Using the purchase price instead of appraised value: Lenders base the calculation on the appraisal, which could differ from the sale price.
• Forgetting about secondary loans: If you have a home equity loan, lenders may calculate CLTV instead of just LTV.

Double-checking your numbers ensures you have an accurate sense of your borrowing position.

LTV ratio and refinancing

If you’re considering refinancing, learning how to calculate LTV ratio is essential. Most lenders require an LTV of 80% or lower to refinance without mortgage insurance. FHA streamline refinancing and VA Interest Rate Reduction Refinance Loans (IRRRLs) offer more flexibility, but your current equity still plays a major role.

By calculating your LTV before applying, you can better predict whether you’ll qualify for refinancing and what kind of terms to expect.

Ready to see your LTV ratio in action?

Understanding how to calculate LTV ratio gives you more control in the mortgage process. This simple formula — loan amount divided by appraised value, multiplied by 100 — can tell you a lot about your borrowing power, interest rate options, and insurance requirements.

Whether you’re buying your first home, refinancing, or tapping into home equity, knowing your LTV ratio prepares you for conversations with lenders and helps you make smarter financial choices.

At Rates.Now, we make it easy to explore mortgage options and compare rates based on your unique financial profile. Use our tools to calculate LTV ratio instantly and connect with lenders who can help you secure the best terms.

Start comparing rates today with Rates.Now and take the next step toward your homeownership goals.

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