Loan Products · March 9, 2025
Loan-to-Value Ratio Explained: Why LTV Affects Everything
LTV is one of the most important numbers in mortgage lending. It affects your rate, mortgage insurance requirement, approval odds, and cash-out potential.
Loan-to-Value ratio: Loan Amount divided by Appraised Value times 100.
Example: $280,000 loan on a $350,000 home = 80% LTV = 20% equity.
Why LTV Matters at Purchase
Rate pricing: conventional rates are tiered by LTV. Lower LTV means lower rate. Pricing improvements typically occur at 60%, 70%, 75%, and 80% LTV thresholds.
PMI threshold: conventional PMI is required above 80% LTV.
Program maximums: conventional up to 97% (3% down), FHA up to 96.5% (3.5% down), VA up to 100% ($0 down), USDA up to 100% ($0 down), investment property conventional up to 85%.
Why LTV Matters for Refinancing
Cash-out refinance limits: conventional 80%, FHA 80%, VA 100%, USDA no cash-out. Rate-term refinance limits: conventional 97%, FHA 97.75%, VA 100%.
Combined LTV (CLTV)
When you have a second mortgage or HELOC: CLTV = (First Mortgage + Second Mortgage) divided by Appraised Value. This is the relevant metric for home equity lending.
Improving Your LTV Position
Wait for appreciation, make extra principal payments, renovate strategically, or request a new appraisal after significant value increases.
HMS monitors your LTV and advises on optimal timing for PMI removal or cash-out moves. Call 309-222-8286.