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Loan-to-Value (LTV) Ratio Required for a Mortgage

Loan-to-Value (LTV) Ratio Required for a Mortgage

    Loan-to-Value ratio, or LTV ratio, is a key factor in determining your ability to qualify for a mortgage and how much home you can afford.  The LTV ratio represents the amount of your mortgage divided by the fair market value of the property that you are buying or refinancing.  For example, if you have a $400,000 mortgage on a property valued at $500,000, the loan-to-value ratio is 80% ($400,000 mortgage ÷ $500,000 property value = .80%).

    When you apply for a mortgage, the lender uses the fair market value of the property according to the appraisal report to calculate your LTV ratio. This is one of the reasons why the appraisal report is important when you apply for a mortgage. If the appraised property value is lower than expected, your LTV ratio may be too high which can impact if your mortgage is approved.  This is also one of the reasons why you should not overpay when you buy a home in addition to the obvious reason of not wasting money.

    Loan-to-value ratio is inversely related to your down payment. The lower your down payment, the larger the mortgage you need to buy a home and the higher the LTV ratio.  The higher your down payment, the smaller the mortgage you need to buy a home and the lower your LTV ratio.  For example, if you make a down payment of 20%, the LTV ratio is 80% and if you make a down payment of 10%, the LTV ratio is 90%.

  • CalculatorUse our DOWN PAYMENT CALCULATOR to understand the down payment required based on home price and LTV ratio
  • From a lender's perspective, the lower the LTV ratio, the better because a lower ratio means you have contributed more of your own money to purchase the property so the lender is better positioned to recover their loan in the event of an unfortunate outcome such as a foreclosure. In short, a lower LTV ratio means that the lender has more collateral or if you cannot repay your mortgage.  This is why lenders apply LTV ratio limits when you apply for a mortgage -- they want to make sure they have sufficient financial protection if you default on your loan.

    Lenders typically offer you their best loan terms -- their lowest mortgage rate and closing costs -- if the LTV ratio is less than a maximum limit, usually 80% (although this figure can be as high as 90% for selected lenders and loan programs).  For example, a lender may quote you a 4.500% mortgage rate with an LTV ratio of 80% and a 4.625% rate with an LTV ratio of 90%.  You should always be aware of how your LTV ratio impacts your mortgage rate.  You may be able to lower your rate and your monthly payment and save a significant amount of money over your loan by increasing your down payment and reducing your LTV ratio.

    Additionally, some lenders may not approve your loan if your LTV exceeds their limit. For example, if you want to buy a home priced at $100,000 and have $1,000 for a down payment, but the lender's maximum LTV ratio is 97%, you may not be able to qualify for the mortgage because a $1,000 down payment on a $100,000 home implies a 99% LTV ratio.

    The LTV ratio guideline is also independent of what size mortgage you can afford based on your monthly income, debt payments, credit score and other factors.  In the previous example, you may be able to afford the monthly payment on the $99,000 loan you need to purchase the home but if the LTV ratio is too high you are unlikely to qualify for the mortgage. In some cases, if your LTV ratio exceed the lender's limit -- usually above 80% -- you may have to pay a higher mortgage rate or private mortgage insurance (PMI), which is an additional ongoing monthly cost. Although most lenders apply maximum LTV ratios, there are several no and low down payment mortgage programs that allow home buyers to qualify for loans with LTV ratios as high as 97% or even 100%, which means you are able to buy a home with down payment ranging from 3% to zero.  

    Please note that lender LTV ratio limits vary by lender, loan amount, property type and especially mortgage program.  For example, maximum LTV ratios are typically lower for jumbo loans, non-owner occupied mortgages for investment properties and loans for multifamily properties.  This means you are required to make a larger down payment to qualify for these loan programs.  Additionally, for certain low down payment mortgage programs, the maximum LTV ratio for an adjustable rate mortgage (ARM) is also lower.

    The most important factor that determines your LTV ratio limit is ratio is the mortgage program you select. The table below outlines the maximum LTV ratio for several conventional and government-backed mortgage programs including several low down payment programs.

  • LTV Ratio Limit By Mortgage Program
  • Standard Conventional Mortgage
    • 80% LTV ratio
    Conventional 3% Down Payment Program
    • 97% LTV ratio
    HomeReady Mortgage
    • 97% LTV ratio
    Home Possible Mortgage
    • 97% LTV ratio
    NACA Mortgage Program
    • 100% LTV ratio
    FHA Mortgage Program
    • 96.5% LTV ratio
    VA Home Loan Program
    • 100% LTV ratio
    USDA Home Loan Program
    • 100% LTV ratio
    HUD Section 184 Mortgage Program
    • 97.75% for loan amounts over $50,000
    • 98.75% for loan amounts below $50,000
  • When you apply for a mortgage be sure to understand the LTV ratio guidelines based on your loan program and amount and property type.  We recommend that you contact multiple lenders in the table below to determine their LTV ratio requirement.  Shopping for your mortgage also enables you to find the loan and lender that best meet your needs.

  • Rate Details*
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    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Total Lender Fees:  
    Loan type:  
    Property Value:  
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    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • Loan-to-Value Ratio (LTV) Example
  • The example below illustrates how the LTV ratio works for a home with a purchase price of $375,000.  As the chart demonstrates, the greater your down payment , the lower your LTV ratio.  Typically lenders offer their best mortgage rate when the LTV ratio is less than or equal to 80%, which means the borrower is making a down payment of at least 20% of the property purchase price, or $75,000 in this example.

    • Down Payment
    • Mortgage
    • Loan-to-Value Ratio
    Breakdown Between Down Payment and Mortgage Loan-to-Value Ratio $400,000 $300,000 $200,000 $100,000 $0
    • $0 $375,000 100%0% Down
    • $18,750$356,25095%5% Down
    • $37,500$337,50090%10% Down
    • $56,250$318,75085%15% Down
    • $75,000$300,00080%20% Down
    • $93,750$281,25075%25% Down
    • $112,500$262,50070%30% Down
    • $131,250$243,75065%35% Down
    • $150,000$225,00060%40% Down
    100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
  • Use our free mortgage quote form to compare no obligation loan proposals from top lenders in your area. Our quote form is free, easy-to-use and requires minimal personal information. Comparing mortgage quotes is the best way to save money on your loan.

  • Sources

    LTV Ratio:

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry


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