How do you calculate the LTV ratio?
The Consumer Financial Protection Bureau describes LTV as a measure that compares the amount being financed with the appraised value of the property. To calculate it, divide the loan amount by the property value used for the transaction, then multiply by 100.
- Formula
- Loan amount ÷ property value × 100
- Example
- 80%$240,000 ÷ $300,000 = 0.80
- Second example
- 75%$180,000 ÷ $240,000 = 0.75
- Working backwards
- $180,000$240,000 value × 0.75 LTV = loan amount
A larger down payment means a smaller loan against the same property, so the LTV is lower. A smaller down payment means a higher LTV.
Which property value do you use?
This is the step most often missed. The value in the formula is not always the price the buyer agreed to pay. The loan program sets the rule. For conventional loans sold to Fannie Mae, the Selling Guide uses:
- Purchase: the lower of the sales price or the current appraised value.
- Refinance: the current appraised value.
Example: a buyer agrees to pay $310,000, the appraisal comes in at $300,000, and the loan is $240,000. The value used is $300,000, the lower of the two, so the LTV is 80%. Dividing by the $310,000 price would give 77.4%, which understates the ratio.
Fannie Mae also sets a rounding rule for loans delivered to it: the result is cut to two decimal places and then rounded up to the next whole percent, so 94.01% is treated as 95%. Other programs and investors publish their own rules, so check the guide for the loan in front of you.
How do LTV and down payment relate?
When the value used equals the purchase price, LTV and the down payment percentage add up to 100%. A 20% down payment leaves an 80% LTV, and a 5% down payment leaves a 95% LTV.
The shortcut stops working when the appraised value is lower than the price. In the example above, the buyer pays $310,000 with a $240,000 loan, so the cash down payment is $70,000, or about 22.6% of the price. The LTV is still 80%, because it is measured against the $300,000 appraised value.
What is the difference between LTV, CLTV, and HCLTV?
LTV looks at one loan. When a property secures more than one loan, two related ratios add the other liens. Fannie Mae defines them this way:
- LTV: the first mortgage amount divided by the property value.
- Combined LTV (CLTV): the first mortgage, plus the drawn balance of any home equity line of credit (HELOC), plus the unpaid balance of any closed-end second mortgage, divided by the property value.
- Home equity combined LTV (HCLTV): the same sum, but counting the full HELOC credit line whether or not it has been drawn.
Example: a property valued at $300,000 has a $240,000 first mortgage and a $40,000 HELOC with $15,000 drawn.
- LTV: $240,000 ÷ $300,000 = 80%.
- CLTV: ($240,000 + $15,000) ÷ $300,000 = 85%.
- HCLTV: ($240,000 + $40,000) ÷ $300,000 = about 93.3%.
Because HCLTV counts the whole credit line, it can never be lower than CLTV.
Why does LTV matter?
According to the CFPB, lenders use LTV when deciding whether to make a loan, how much to lend, and what interest rate to offer. Borrowers with a higher LTV are usually offered a higher rate. A high LTV may also lead the lender to require private mortgage insurance or to offer a government-backed loan, either of which can add upfront and monthly costs.
LTV is one factor among several. Credit history, income, and debts also affect eligibility and pricing, and each loan program sets its own maximum ratios.
How does LTV affect private mortgage insurance?
Private mortgage insurance (PMI) on a conventional loan can be removed as the balance falls. The CFPB describes these points for loans on single-family principal residences closed on or after July 29, 1999:
- 80% of original value: the borrower can ask in writing to cancel PMI once the scheduled balance reaches this point, or earlier if extra payments get there first. The servicer can require a good payment history, current payments, no junior liens, and evidence that the property has not lost value.
- 78% of original value: the servicer must end PMI automatically on the date the scheduled balance reaches this point, if the borrower is current.
- Midpoint of the loan term: PMI must end the month after the halfway point of the amortization schedule, such as after 15 years on a 30-year loan, if the borrower is current.
"Original value" means the lower of the contract sales price or the appraised value at purchase. For a refinance, it is the appraised value at the time of the refinance.
Example: with an original value of $300,000, the borrower can request cancellation when the scheduled balance reaches $240,000 (80%), and PMI ends automatically at $234,000 (78%).
Where does LTV appear in the SAFE MLO test outline?
The official NMLS content outline names LTV in two of its five content areas, and PMI in two:
- General mortgage knowledge: the LTV ratio is listed among the financial terms used in the mortgage industry.
- Mortgage loan origination activities: LTV and debt-to-income are listed as qualifying ratios in borrower analysis, and PMI is listed under insurance.
- Federal mortgage-related laws: the Homeowners' Protection Act is listed among other federal laws.
The outline does not publish how many questions cover any single topic, and not every topic appears on every test. Learn the calculation well enough to apply it to an unfamiliar set of numbers. Our SAFE MLO exam guide covers the five content areas and their weights.
Common LTV mistakes
- Reversing the numbers. Dividing value by loan gives a figure above 100%, such as 125% instead of 80%. The loan amount goes on top.
- Using the higher value. On a purchase, a program that uses the lower of price or appraised value will not let a high appraisal reduce the ratio.
- Mixing up LTV and debt-to-income. LTV compares the loan with the property value. Debt-to-income compares debt payments with income.
- Using the drawn HELOC balance for HCLTV. CLTV uses the drawn balance. HCLTV uses the full credit line.
- Measuring PMI cancellation against today's value. The 80% and 78% points are measured against the original value.
Practice problems
Work each one before reading the answer.
- A $285,000 loan on a home with a $300,000 sales price and a $305,000 appraisal, using the lower value. The value used is $300,000. $285,000 ÷ $300,000 = 95% LTV.
- A buyer puts 10% down on a $350,000 purchase, and the home appraises at the price. The loan is $315,000. $315,000 ÷ $350,000 = 90% LTV.
- A $200,000 loan, a $250,000 sales price, and a $260,000 appraisal, using the lower value. $200,000 ÷ $250,000 = 80% LTV.
- A $400,000 property has a $300,000 first mortgage and a $50,000 HELOC with $20,000 drawn. LTV is 75%, CLTV is 80%, and HCLTV is 87.5%.
- The original value was $250,000. At what scheduled balance must PMI end automatically? $250,000 × 0.78 = $195,000.
For a method to review missed calculations, see how to get more from practice questions. You can also try the sample question on our homepage.
Official sources
- CFPB: What is a loan-to-value ratio? - definition and how lenders use LTV for approval, pricing, and mortgage insurance.
- CFPB: When can I remove private mortgage insurance? - the 80% request, 78% automatic, and midpoint termination points, and the meaning of original value.
- Fannie Mae Selling Guide B2-1.2-01: LTV ratios - the value used for purchases and refinances, and the rounding rule.
- Fannie Mae Selling Guide B2-1.2-02: CLTV ratios - which balances the combined ratio adds.
- Fannie Mae Selling Guide B2-1.2-03: HCLTV ratios - treatment of the full HELOC credit line.
- NMLS: national test content outline - where LTV, qualifying ratios, PMI, and the Homeowners' Protection Act are listed.
Educational information only, not legal advice or a licensing determination. This independently written guide reflects the linked sources reviewed on November 14, 2026. Loan programs, investors, and insurers set their own LTV and mortgage insurance rules, and those rules change; check the current guide for the loan concerned. Exam preparation does not guarantee a passing score or license.