What does loan-to-value ratio mean?
Loan-to-value ratio, or LTV, compares a mortgage amount with the property value used for that loan. Divide the loan amount by the applicable value and express the result as a percentage. LTV helps the lender assess the financing, but the accepted value, loan purpose and program rules affect the calculation.
Quick answers
Open a question. Read the answer right here.
Which property value counts?
For a standard Fannie Mae purchase, the calculation generally uses the lower of the sales price or current appraised value. Refinances generally use the current appraised value. Special transactions can follow different rules. An online estimate is not a substitute for the value the lender accepts.
A hypothetical LTV calculation
Suppose a purchase price and accepted appraised value are both $500,000, and the proposed first mortgage is $400,000. Then $400,000 ÷ $500,000 = 80% LTV. The $100,000 difference is the down payment in this simplified example. It does not include closing costs, prepaid expenses or money retained after closing.
Which property value counts?
For a standard Fannie Mae purchase, the calculation generally uses the lower of the sales price or current appraised value. Refinances generally use the current appraised value. Special transactions can follow different rules. An online estimate is not a substitute for the value the lender accepts.
Compare the cash you use and keep
Ask how the proposed LTV affects eligibility, pricing and any mortgage insurance. Compare a larger down payment with keeping funds for repairs and emergencies. If another loan will also be secured by the home, ask for the combined-loan calculation as well. The example’s percentage is arithmetic, not an eligibility promise.
