What Is Loan‑to‑Value (LTV) Ratio and Why It Matters

Loan amount: This is your current loan balance if you already have a mortgage. (You can find this number on your monthly statement or online account.) If you’re looking to buy a home for the first time, it’s the total amount you’ll borrow to purchase the property.

Property value: This is the estimated worth of the property, typically determined by an appraisal. Many homeowners are tempted to use an estimate of what their home would sell for, like a Zillow estimate. But for a bank, that number isn’t real until someone agrees to it. The appraisal is the number that matters when talking LTV ratios.

x 100: Multiplying the result by 100 converts the ratio into a percentage.

This formula measures your mortgage amount against your home’s current market value and tells lenders how much equity you have to work with.

Let’s break it down with a simple example: Property value: $400,000 Loan amount: $280,000 LTV = ($280,000 / $400,000) × 100 = 70%

That’s a pretty good LTV if you’re applying for a loan. It means you’ve paid off a good chunk of your mortgage and you’ve got solid equity in your home.

Originally published at https://cbna.com.