Math Concept
Loan-to-Value (LTV) Ratio: Real Estate Math Explained
Loan-to-Value (LTV) is the ratio of a loan amount to the property's appraised value or sale price (whichever is lower). It's how lenders measure risk — and one of the simpler real estate exam formulas: Loan ÷ Value × 100 = LTV %.
The Formula
LTV % = (Loan Amount ÷ Property Value) × 100. Property value is the lower of appraised value or sale price.
If a buyer puts down 20%, LTV is 80%. If a buyer puts down 5%, LTV is 95%. The down payment percentage and LTV always sum to 100%.
Three Worked Examples
Question 1
A buyer purchases a property for $300,000 and obtains an $240,000 loan. What's the LTV?
LTV = $240,000 ÷ $300,000 × 100 = 80%.
Question 2
A buyer's loan is $342,000. The property appraised at $360,000 but sold for $380,000. What's the LTV?
Use the LOWER of appraised value or sale price. Lower is $360,000. LTV = $342,000 ÷ $360,000 × 100 = 95%.
Question 3
A buyer wants 80% LTV financing on a $475,000 purchase. What's the loan amount?
Loan = $475,000 × 80% = $380,000.
Why LTV Matters
≤80% LTV — Conventional loans typically don't require PMI (private mortgage insurance)
>80% LTV — PMI usually required on conventional loans until LTV reaches 78–80%
Up to 96.5% LTV — Available on FHA loans (3.5% down) with mortgage insurance premium (MIP)
100% LTV — Available on VA and USDA loans for qualified borrowers
Higher LTV = higher risk for lender = higher interest rate or required insurance
Drill LTV Math
Practice 10+ LTV problems on the math walkthrough page.
Related Math Walkthroughs
LTV FAQ
Is LTV based on price or appraisal?
The lower of the two. If a property appraises low, the buyer must put more cash down to keep LTV at the target percentage.
What's a 'piggyback' loan?
Two loans used together to avoid PMI. E.g., 80% first mortgage + 10% second mortgage + 10% down = '80/10/10' structure.
Does LTV change after closing?
Yes. As the loan amortizes and (usually) the property appreciates, LTV decreases over time. Borrowers can request PMI removal once LTV drops below 80% on conventional loans.