LTV Ratio
One ratio decides whether you pay PMI, what your refinance options look like, and how a lender sizes up your loan — and it’s simpler than it sounds.
What Is It
Loan-to-Value (LTV) ratio is the loan amount divided by the home’s appraised value, expressed as a percentage. It’s the single number lenders use most to assess risk on a mortgage — the lower the LTV, the more equity cushion the lender has if the borrower defaults. It’s calculated at the time of the loan using the appraised value, not necessarily what the buyer is paying, so an appraisal that comes in below the purchase price can push LTV higher than the down payment alone would suggest.
Why It Matters
LTV is the direct trigger for PMI — cross above 80% LTV (meaning less than 20% down) and PMI kicks in. It also affects refinancing and home equity loan eligibility, since lenders set maximum LTV thresholds for those products too. A bigger down payment isn’t just about a smaller loan — it’s about staying under the specific LTV lines that unlock better terms.
Interest rates themselves are often tiered by LTV as well — a lender may offer a meaningfully better rate at 75% LTV than at 90%, on top of avoiding PMI entirely, which is part of why a slightly larger down payment can pay for itself well beyond the smaller loan balance alone. Lenders publish these LTV tiers ahead of time, which makes it possible to target a specific down payment size on purpose rather than discovering the cutoff after the fact.
Quick Example
A $400,000 home with a $80,000 down payment (20%) means a $320,000 loan — LTV = $320,000 ÷ $400,000 = 80%, exactly at the PMI threshold, no PMI required. The same home with only $40,000 down (10%) means a $360,000 loan — LTV = 90%, well into PMI territory. The $40,000 difference in down payment doesn’t just shrink the loan — it’s the entire reason one buyer pays PMI and the other doesn’t.
See how much more you’d need to put down to avoid PMI:
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