What is a loan-to-value (LTV) ratio?

The loan-to-value ratio (LTV) compares your loan amount to the appraised value of the property being purchased or refinanced. For example, borrowing $320,000 on a $400,000 property results in an 80% LTV. Lenders use LTV to gauge risk — the lower the LTV, the less risk the lender takes on. Conventional loans with an LTV above 80% typically require private mortgage insurance (PMI). Government-backed loans like FHA allow higher LTVs (up to 96.5%) but charge mortgage insurance premiums instead.