Your LTV ratio — the percentage of the home's value you're borrowing — affects your rate, PMI requirement, loan eligibility, and cash-out capacity. Here is everything you need to know.
Your LTV ratio — the percentage of the home's value you're borrowing — affects your rate, PMI requirement, loan eligibility, and cash-out capacity. Here is everything you need to know.
What Is LTV and How Do You Calculate It?
LTV = Loan Amount ÷ Appraised Value × 100
Examples: $280,000 loan ÷ $350,000 home = 80% LTV. $332,500 loan ÷ $350,000 home = 95% LTV.
Rate pricing: Lower LTV = better interest rates in most programs
Loan eligibility: Cash-out refinances capped at 80% LTV (conventional)
Loan amount: Maximum loan = LTV limit × appraised value
Lender risk: Lower LTV = more equity cushion = less risk of loss on default
LTV Thresholds That Matter
LTV
Significance
97% (3% down)
Max for conventional HomeReady/Home Possible
96.5% (3.5% down)
Standard FHA maximum
95% (5% down)
Standard conventional maximum
90% (10% down)
Lower PMI tier, improved conventional pricing
85% (15% down)
Significant PMI reduction
80% (20% down)
No PMI required; best conventional rates
78%
Automatic PMI cancellation threshold
75% or lower
Best jumbo and investment property rates
How to Improve Your LTV
Larger down payment — directly reduces initial LTV
Home appreciation — as value rises, LTV falls even if you haven't made extra payments
Extra principal payments — reduces balance faster than scheduled amortization
Refinance appraisal — if your home has appreciated, a new appraisal establishes a new LTV baseline
Frequently Asked Questions
For conventional loans, 80% LTV (20% down) is the gold standard — it eliminates PMI and qualifies for the best rate tiers. 90–95% LTV is common and acceptable for most programs (with PMI). FHA goes up to 96.5% (3.5% down), VA can be 100% (0% down) for eligible veterans. Lower LTV is always better from a cost and qualification standpoint.
VA loans (100% LTV) and USDA loans (100% LTV) are the only true zero-down programs. Some down payment assistance programs effectively bring LTV to 100% by funding the down payment, though the first mortgage itself may cap at 97% LTV. Conventional lenders don't offer 100% LTV without government backing.
Disclaimer: Smart Mortgage Guide provides educational content only. We are not a licensed mortgage lender, broker, or financial advisor. Rates, limits, and program details are subject to change. Always consult with a licensed mortgage professional before making financial decisions.