Loan-to-Value Ratio (LTV)
Definition
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
Example
A buyer purchases a $400,000 home with a $60,000 down payment, borrowing $340,000. LTV = $340,000 / $400,000 = 85%. Since LTV exceeds 80%, PMI is required on a conventional loan. Once the loan balance drops to $320,000 (80% LTV), the borrower can request PMI removal.
Exam Tip
Know the formula: LTV = Loan Amount / Property Value. The key threshold is 80% — above 80% LTV, PMI is required for conventional loans. Remember that lenders use the LOWER of purchase price or appraised value. The exam may give you down payment percentage and ask for LTV (100% minus down payment percentage = LTV).
Related Financing Terms
Deed (in foreclosure context)
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Trustee Sale
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
VA Loan
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
Frequently Asked Questions
Test Your Financing Knowledge
Practice with exam-style questions to make sure you can apply Loan-to-Value Ratio (LTV) and other financing concepts.