What is Loan-to-Value Ratio?
The loan-to-value ratio is the percentage of a property's appraised value or purchase price that your mortgage loan represents, helping lenders gauge risk.
Your loan-to-value ratio is calculated by dividing your loan amount by the property's appraised value or purchase price, whichever is lower. Borrowers encounter it when applying for a purchase or refinance, because it influences pricing, mortgage insurance requirements, and whether a loan is considered conventional or high-balance. A higher ratio means you have less equity, which can lead to higher costs or stricter guidelines. Watch for how the ratio is determined for refinances versus purchases, and note that paying down the loan or a larger down payment lowers it. Lenders may also use a combined loan-to-value ratio when there is a second mortgage.
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