LTV

LTV (Loan-to-Value) is the outstanding mortgage balance divided by the property’s current market value, expressed as a percentage. A $350,000 mortgage on a $500,000 house has 70% LTV. The complement (30% in this example) is equity.

LTV is the single most important number in mortgage underwriting after credit score. Standard tiers:

• ≤ 80% — standard conforming. No PMI required; best rates available.
• 80-90% — requires PMI (Private Mortgage Insurance) until LTV drops below 78%. Slightly worse rates.
• 90-95% — higher PMI, more credit-quality scrutiny, possibly fewer programs available.
• 95-97% — first-time-homebuyer programs (Fannie Mae HomeReady, FHA). Highest PMI; mandatory homebuyer education in some cases.
• 97-100% — VA loans (zero-down for qualifying veterans), USDA rural loans. Limited eligibility.
• > 100% — underwater. The mortgage exceeds the property value. Refinancing options narrow significantly.

LTV changes constantly: the numerator shrinks each month from principal reduction; the denominator floats with the market. A property bought at 90% LTV that appreciates 10% and amortises for a year can be at 80% LTV without any extra payments — automatically eliminating PMI under the HPA (Homeowners Protection Act) once the threshold is met.

For investment property, LTV ratios are stricter — many lenders cap at 75-80% LTV for non-owner-occupied properties due to higher default risk.