Definition
The percentage of a property's value that is financed through a mortgage, calculated as loan amount divided by property value. LTV affects interest rates, PMI, and loan approval chances.
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A 20% down payment results in an 80% LTV ratio, which is generally favorable to lenders and avoids PMI. Higher LTV ratios (above 95%) indicate higher lender risk and typically require PMI. Lenders set maximum LTV ratios they'll accept, typically 95-97%.
Pro Tip
Aim for 80% LTV or lower to avoid PMI and get the best interest rates.
Example
With a $300,000 loan on a $375,000 purchase, the LTV ratio was 80%, which allowed the buyer to avoid PMI.