The Loan-to-Value (LTV) ratio is the size of your mortgage divided by the appraised value of the property, expressed as a percentage. If you buy a $400,000 home with a $360,000 loan, your LTV is 90%.
LTV is one of the most important risk metrics in mortgage underwriting. Higher LTV means less equity, which means higher risk to the lender and often higher pricing, mortgage insurance, or stricter qualifying. Lower LTV (more equity) means better rates and fewer overlays.
Conventional loans typically require LTV at or below 97% (with PMI). FHA goes to 96.5%. VA and USDA allow 100% LTV. Cash-out refinances usually cap at 80% LTV for conventional and 90% for FHA.