What is a loan-to-value (LTV) ratio? Here’s why it matters.

Your loan-to-value (LTV) ratio compares your property's value to how much money you're borrowing. It’s used by lenders to assess risk before approving a mortgage or loan. A lower LTV usually means better terms and lower interest rates.

LTV works a little differently depending on the type of loan you’re applying for. For mortgages, it helps determine approval, interest rates, and whether you’ll need private mortgage insurance (PMI). For home equity loans or lines of credit, lenders use LTV to determine how much of your home’s equity you can borrow against.

How is my LTV ratio calculated?

Loan amount: This is your current loan balance if you already have a mortgage. (You can find this number on your monthly statement or online account.) If you’re looking to buy a home for the first time, it’s the total amount you’ll borrow to purchase the property.

Property value: This is the estimated worth of the property, typically determined by an appraisal. Many homeowners are tempted to use an estimate of what their home would sell for, like a Zillow estimate. But for a bank, that number isn’t real until someone agrees to it. The appraisal is the number that matters when talking LTV ratios.

x 100: Multiplying the result by 100 converts the ratio into a percentage.

This formula measures your mortgage amount against your home’s current market value and tells lenders how much equity you have to work with.

Let’s break it down with a simple example:
Property value: $400,000
Loan amount: $280,000
LTV = ($280,000 / $400,000) × 100 = 70%

That’s a pretty good LTV if you’re applying for a loan. It means you’ve paid off a good chunk of your mortgage and you’ve got solid equity in your home.

Like a credit score, this number can make or break opportunities for you—from buying a home to getting home equity loans.

If you default, there's less equity in the home for the lender to recoup their money. That’s why it’s a key factor in approvals, interest rates, and loan amounts.

A higher ratio tells lenders you could be borrowing too much compared to what your home’s worth. That might be a red flag if the market dips or if you hit financial trouble.

With a lower ratio, lenders are more likely to approve the loans you’re looking for. That includes anything from mortgages to home equity loans and lines of credit.

High ratios can mean higher rates across the board. And for mortgages, you’re more likely to pay private mortgage insurance (PMI)—a monthly fee that’s added to your mortgage payments until you’ve built more equity in your home.

A low ratio usually means better rates. You might even avoid PMI on mortgages altogether.

Understanding your ratio at any stage can help you set and achieve goals easier.

You’ll qualify for more favorable terms because the lender sees less risk. That means lower monthly payments and more cash in your pocket.

Most banks require PMI when you finance a mortgage over 80% LTV. But at Community Bank, you can avoid paying PMI costs with only 10% down.

A lower LTV means more equity. That means you own more of your home, and it gives you more borrowing power if you need a home equity loan or line of credit.

Our Loan Officers can provide guidance to help you:

• Make a larger down payment
• Buy a lower-priced home to help keep your borrowing amount manageable
• Pay down your mortgage faster
• Wait for your home value to rise (pro tip: consider a new appraisal if property values have gone up in your area)
• Avoid additional loans or refinancing that increase your loan balance

Yes. Most lenders want to see a ratio below 85% for a home equity line of credit (HELOC). The lower your LTV, the more you’ll qualify for with better terms.

Minimum: There’s no official minimum, but under 80% is where the perks live.

Maximum: Often 85%-90% for home equity products. For mortgages, maximum LTV limits vary based on loan type and investor guidelines.

Whether you’re renovating, consolidating debt, or investing in your future, Community Bank can help you see what your LTV can do.

Explore fixed-rate home equity loans and flexible home equity lines of credit that fit your needs and goals.

Explore mortgage options with competitive rates and no PMI with as little as 10% down.

From approvals to appraisals, we have answers to help you make informed decisions.