A percentage that shows how much equity a borrower will have in a home
LTV compares how much a person plans to borrow versus the property's value. For example, a 90% LTV loan that means you want to borrow 90% of the home's price and will have a 10% down payment (or equity if you're refinancing). This gives you 10% equity in your property.
All lenders use LTV as a guideline to figure out if you're a high-risk loan candidate. The higher the LTV, the more risk that a lender takes, causing them to pull out their magnifying glass to check your finances. Also, if your LTV is over 80%, the lender requires that you buy Private mortgage insurance (PMI).
The LTV cut-off will vary depending on the lender and the type of loan that you want. For example, our lenders' maximum LTV for a loan to buy a home that you intend to live in is 95%.
Example: How do you calculate your LTV?
Step 1
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Property's purchase price | $350,000 | |
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Your down payment | - | 30,000 | |
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Your loan amount | = | $320,000 | |
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Step 2
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Your loan amount | $320,000 | |
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Property's purchase price |
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350,000 | |
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LTV |
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91% | |
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See: Down payment, Equity, Private mortgage insurance
More on: LTV