The ratio of loan amount to asset value; used in mortgage qualification.
Loan-to-Value (LTV) is the ratio of the loan amount to the appraised value of the asset being financed, expressed as a percentage. For mortgages, an LTV of 80% means the loan is 80% of the home's value; you're putting down 20% equity. A higher LTV means a larger loan relative to asset value, indicating more risk to the lender. Mortgages with LTV above 80% typically require private mortgage insurance (PMI), protecting the lender if you default. LTV is crucial in mortgage qualification: most conventional loans have maximum LTVs of 95% (5% minimum down payment), though FHA loans allow LTVs up to 96.5%. Understanding LTV helps you understand how much you may want to put down and whether you'll face PMI.