Loan-to-Value Ratio (LTV) — Definition, Calculation, and Thresholds

Updated 2026-06-21

The Loan-to-Value Ratio (LTV) is a measure that expresses the relationship between the amount of a mortgage loan and the value of the property securing it. Often written simply as loan-to-value, it represents the ratio of the loan amount to the value of the asset being purchased or refinanced, stated as a percentage. In words, you divide the loan amount by the property value and multiply by 100. A closely related figure, the combined loan-to-value (CLTV) (also called the total loan-to-value, or TLTV), accounts for more than one lien against the same property. LTV is one of the core underwriting metrics in mortgage lending and is heavily tested on the NMLS SAFE MLO national exam, where it appears under General Mortgage Knowledge.

How the Loan-to-Value (LTV) Ratio Is Calculated

The LTV ratio is calculated by dividing the loan amount by the value of the property and expressing the result as a percentage:

Formula: LTV = (Loan Amount / Property Value) x 100

The property value used in the LTV calculation is typically determined by an appraisal. A property appraisal evaluates the property's value to ensure it provides adequate collateral for the loan, and that appraised value (or the property's price) becomes the denominator in the LTV calculation.

Combined Loan-to-Value (CLTV / TLTV) for Loan-to-Value Layering

When a borrower has more than one lien on the property at the same time, lenders look at the combined loan-to-value (CLTV), also referred to as the total loan-to-value (TLTV). A simultaneous second-lien loan — either a closed-end second mortgage or a HELOC originated concurrently with the first-lien mortgage — is typically used in lieu of a higher down payment, which raises the combined ratio. For example, with Freddie Mac's Affordable Seconds used alongside a Home Possible first mortgage, the combined TLTV can reach up to 105%. As combined LTV ratios rise, owner equity falls and credit risk increases; historically, as combined LTV ratios rise, so do defaults.

Loan-to-Value (LTV) and Mortgage Insurance

LTV directly drives whether mortgage insurance is required on a conventional loan. Mortgage Insurance (MI) is typically required for conventional loans when the borrower's down payment is less than 20% of the home's purchase price, resulting in an LTV greater than 80%. In that case lenders generally require Private Mortgage Insurance (PMI) to protect against default. Conversely, if the original LTV ratio is 80% or less, MI is generally not required.

Under the Homeowners Protection Act (HPA) of 1998, the PMI thresholds tied to LTV are:

• Borrower-Requested Cancellation: A borrower may request cancellation of PMI when the principal balance reaches 80% of the original value of the property, provided they have a good payment history and meet other lender requirements.
• Automatic Termination: PMI must be automatically terminated when the principal balance reaches 78% of the original value of the property, based on the original amortization schedule, regardless of payment history.
• Final Termination: PMI must be terminated by the midpoint of the loan's amortization period, even if the 78% LTV has not been reached.

Loan-to-Value (LTV) by Loan Program

Maximum LTV varies by loan type:

• Conventional loans: While a 20% down payment (80% LTV) is traditional to avoid PMI, many conventional loans are available with lower down payments (for example, 3% or 5%), which produces a higher LTV and typically triggers PMI.
• FHA loans: FHA loans allow for very low down payments, typically 3.5%.
• VA loans: VA loans often permit 100% LTV for eligible veterans, allowing a home purchase with no down payment and without traditional Private Mortgage Insurance (PMI).
• USDA loans: Programs like the Single Family Housing Guaranteed Loan Program (SFHGLP) often allow for 100% LTV, meaning borrowers may not need a down payment; the USDA guarantee functions similarly to mortgage insurance by reducing the lender's risk.

Why Loan-to-Value (LTV) Matters in Underwriting and Risk

LTV is a key factor in credit risk assessment and is one of the data points that automated underwriting systems such as Desktop Underwriter (DU) analyze alongside credit history, the debt-to-income (DTI) ratio, and reserves. A higher LTV generally indicates a higher risk for the lender, often leading to requirements for mortgage insurance, while a lower LTV implies less risk. A large down payment, resulting in a lower LTV, is recognized in underwriting as a compensating factor that can offset weaknesses elsewhere in a borrower's profile. For these reasons, MLOs must understand how LTV is calculated and how it interacts with mortgage insurance, loan program limits, and overall borrower risk.