The loan to value ratio (LTV) is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. If a borrower makes a 20% downpayment, he/she is said to have a 80% LTV on the loan. Each loan type has a maximum LTV limit. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to payout of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance.

Posted in: Terminology – The Language of Mortgage Lending