Loan-to-value ratio (LTV) is your loan amount divided by the home's value, expressed as a percentage. Put 20% down and borrow the rest, and you're at 80% LTV. It's the lender's quick read on how much skin you have in the game.
Why lenders obsess over it: if a borrower defaults, the lender's cushion is the gap between the loan balance and what the house can sell for. A low LTV means a big cushion; a high LTV means the lender could lose money if prices dip. So LTV drives real costs for you:
- Above 80% LTV on a conventional loan, you'll typically pay private mortgage insurance
- Lower LTV tiers generally earn better interest rates
- Refinance and cash-out options are gated by LTV limits
Your LTV isn't frozen at closing. Every principal payment nudges it down, and rising home values push it down faster — that's your equity growing from the other side of the same equation. Deciding how much to put down is really a decision about your starting LTV; here's a practical take on how much down payment makes sense.