Loan-to-Value Ratio (LTV): How It Works and Why It Matters on a New Home
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Your loan-to-value ratio (LTV) is your loan amount divided by the home's value, shown as a percent. On a purchase, Fannie Mae uses the lower of the sales price or the appraised value as the ""value,"" so a $380,000 loan on a $400,000 home is a 95% LTV. Your LTV decides whether you pay mortgage insurance, how much help a builder can give you, and often your rate.
What is a loan-to-value ratio?
The Consumer Financial Protection Bureau (CFPB) says LTV ""is a measure comparing the amount you are financing with the appraised value of the property."" It also says, ""The higher your down payment, the lower your LTV ratio.""
The CFPB also says: ""Lenders will use the LTV to determine how much you can borrow, and the interest rate you will be offered."" It adds that borrowers with a higher LTV ""will usually be offered a higher interest rate.""
How do you calculate loan-to-value?
Here is the formula Fannie Mae's Selling Guide (section B2-1.2-01) gives for a purchase: ""Divide the original loan amount by the property value. (The property value is the lower of the sales price or the current appraised value.)""
So you need two numbers:
Your loan amount.
The lower of the contract price or the appraisal.
Then divide. A $360,000 loan on a home that sells and appraises at $400,000 is 360,000 ÷ 400,000 = 0.90, or a 90% LTV.
One small rule trips people up. Fannie Mae says the result ""must be truncated (shortened) to two decimal places, then rounded up to the nearest whole percent."" Its own example: ""94.01% will be delivered as 95%."" So an LTV that is barely over a line counts as the next whole percent.
What LTV do you need to buy a house?
It depends on the loan type. Here is what the main programs say, from their own pages:
Conventional (Fannie Mae): Fannie Mae offers 97% LTV options on a one-unit home you will live in. For its standard 97% loan, ""At least one borrower must be a first-time homebuyer."" Its HomeReady 97% option does not require a first-time buyer but has an income cap of ""80% of AMI.""
FHA: HUD's Mortgagee Letter 2026-11 (Oct. 8, 2026) says borrowers with a credit score ""at or above 580"" are ""eligible for maximum financing,"" while scores ""between 500 and 579"" are ""limited to a maximum LTV of 90%.""
VA: The VA says eligible buyers can get ""No down payment as long as the sales price isn't higher than the home's appraised value.""
How does LTV change what you pay?
This is where LTV gets real. Below is an EXAMPLE only: a $400,000 new home that appraises at $400,000, a 30-year fixed loan, and the 7.18% average rate in Freddie Mac's survey for the week of Nov. 5, 2026. Your own rate will be different.
Down payment | Loan amount | LTV | Mortgage insurance on a conventional loan? | Most a builder can pay toward financing costs (Fannie Mae) | Principal and interest per month at 7.18% |
|---|---|---|---|---|---|
3% ($12,000) | $388,000 | 97% | Yes | 3% = $12,000 | $2,628.45 |
5% ($20,000) | $380,000 | 95% | Yes | 3% = $12,000 | $2,574.25 |
10% ($40,000) | $360,000 | 90% | Yes | 6% = $24,000 | $2,438.77 |
20% ($80,000) | $320,000 | 80% | No | 6% = $24,000 | $2,167.79 |
The payment column does not include taxes, insurance or mortgage insurance. It only shows how a smaller loan lowers principal and interest.
Mortgage insurance
Fannie Mae requires mortgage insurance on a conventional loan when the LTV is above 80% (Selling Guide B7-1-01). That is why 20% down is the famous number.
The CFPB explains how it comes off later. You can ask your servicer to cancel private mortgage insurance (PMI) ""on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home."" Your servicer ""must automatically terminate PMI"" when the balance is scheduled to reach 78 percent, if you are current. And for this rule, the CFPB says ""original value"" generally means ""the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower.""
On FHA loans, LTV decides how long you pay the annual mortgage insurance premium. HUD's Mortgagee Letter 2023-05 shows that on a loan longer than 15 years with a base amount up to $726,200, an LTV of 90% or less pays it for 11 years, and an LTV above 90% pays it for the mortgage term.
How much a builder can help
Builders often offer to pay closing costs or buy down your rate. Fannie Mae calls these ""financing concessions,"" and its Selling Guide (B3-4.1-02) caps them by LTV for a home you will live in: ""Greater than 90%"" = 3%, ""75.01% – 90%"" = 6%, and ""75% or less"" = 9%. Those limits ""are calculated using the lower of the sales price or appraised value (not the loan amount).""
So a buyer putting 5% down can get less builder help on a Fannie Mae loan than a buyer putting 10% down. Ask your lender which cap applies before you sign. For today's offers in a community, call 561-704-0091.
What happens to your LTV if a new home appraises low?
This is the new-construction trap most buyers miss. You sign a contract with the builder months before the home is done. The appraisal often happens near the end of the build. If it comes in under your contract price, your LTV is figured on the lower appraised value, not on the price you agreed to pay.
The CFPB lists ""The home was appraised at less than the sales price"" as one reason a lender may send a revised Loan Estimate.
Here is an EXAMPLE with the same $400,000 contract, 5% down plan and 7.18% rate:
Appraises at $400,000 | Appraises at $390,000 | |
|---|---|---|
Value used for LTV | $400,000 | $390,000 |
Largest loan at 95% LTV | $380,000 | $370,500 |
Cash you bring for the down payment | $20,000 | $29,500 |
Most a builder can pay at over 90% LTV (3%) | $12,000 | $11,700 |
Principal and interest at 7.18% | $2,574.25 | $2,509.90 |
If the price stays at $400,000, you bring $9,500 more cash ($29,500 instead of $20,000) to hold the same 95% LTV. Some buyers ask the builder to lower the price, some bring more cash, and some accept a higher LTV if their loan allows it. Know your options before the appraisal comes back.
Is LTV the same as CLTV?
CLTV is the combined loan-to-value. It counts every loan on the home, such as a first mortgage plus a second loan from a down payment program. Fannie Mae's financing-concession table uses ""LTV/CLTV,"" so a second loan can push you into a lower cap. If you plan to use down payment help, ask your lender to figure your CLTV too.
What this means for new-construction buyers
LTV is not just a math class word. On a new home it touches three decisions:
Your down payment. Moving from 5% to 10% down changes the Fannie Mae builder-help cap from 3% to 6% in the example above.
Your appraisal plan. Because value is the lower of price or appraisal, a low appraisal near closing can change your cash to close. Keep a cushion if you can.
Your mortgage insurance. Getting to 80% LTV ends the need for PMI on a conventional loan, and getting to 90% or less shortens FHA's annual premium to 11 years under HUD's 2023 chart.
Ask your lender for your LTV in writing at pre-approval and again when the appraisal arrives. Builder-neutral help comparing communities is a call away at 561-704-0091.
Common Questions
What is a good loan-to-value ratio?
For a conventional loan, 80% or less is the line where Fannie Mae no longer requires mortgage insurance. A lower LTV can also help your rate, since the CFPB says borrowers with a higher LTV will usually be offered a higher interest rate. Many buyers still buy with a higher LTV and drop PMI later.
Is LTV based on the price or the appraisal?
For a purchase, Fannie Mae uses the lower of the sales price or the current appraised value. If a new home appraises below your contract price, your LTV is figured on the appraisal. That can raise the cash you need to keep the same LTV.
How do I calculate my LTV?
Divide your loan amount by the lower of the price or the appraised value. A \$360,000 loan on a \$400,000 home is a 90% LTV. Fannie Mae truncates the result to two decimals and rounds up to the next whole percent.
Can I buy a home with a 97% LTV?
Yes, on some loans. Fannie Mae offers 97% LTV options for a one-unit home you will live in, and its standard 97% loan needs at least one first-time homebuyer. HomeReady also allows 97% with an income cap of 80% of area median income.
Does LTV limit how much a builder can pay?
On Fannie Mae loans, yes. Financing concessions are capped at 3% when LTV or CLTV is over 90%, 6% from 75.01% to 90%, and 9% at 75% or less for a home you will live in. The cap is figured on the lower of price or appraised value.
When does PMI come off based on LTV?
The CFPB says you can ask to cancel PMI when your balance is scheduled to reach 80 percent of the original value. Your servicer must end it automatically at 78 percent if you are current. Original value generally means the lower of the contract price or the appraisal when you bought.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: What is PMI? · Seller concession limits · When a new home appraises below the builder's price · How much is a down payment?
This is general information, not financial, tax or legal advice. Figures checked November 9, 2026.