The LTV formula
LTV = first mortgage balance ÷ home value × 100
CLTV = (all loan balances) ÷ home value × 100
Paydown to reach X% = balance − value × X%
Worked example
A $400,000 home with a $340,000 mortgage: LTV = 340,000 ÷ 400,000 = 85%. To reach 80% LTV the balance must fall to $320,000, a paydown of $20,000; to reach 78%, $312,000 ($28,000 paydown).
Why the thresholds matter
- 80% — conventional loans at or below 80% LTV generally do not require PMI, and you can ask to cancel existing PMI once the balance reaches 80% of the original value.
- 78% — PMI ends automatically at 78% of original value under the Homeowners Protection Act.
- 96.5% — the FHA minimum investment of 3.5% means the base loan can be at most 96.5% of the value.
- Lower LTVs usually earn better pricing, and HELOC lenders cap CLTV — see the home equity calculator.
Frequently asked questions
Which value is used for LTV — price or appraisal?
For a purchase, lenders use the lower of the price and the appraised value. For a refinance or HELOC, they use a current appraisal. For PMI cancellation rules, the original value is used.
What is a good LTV?
80% or lower avoids PMI on conventional loans. Lower LTVs generally qualify for better rates.
Sources
- Consumer Financial Protection Bureau, “When can I remove private mortgage insurance (PMI) from my loan?”
- Homeowners Protection Act of 1998, Public Law 105-216
- U.S. Department of Housing and Urban Development, Single Family Housing Policy Handbook 4000.1 (minimum required investment and credit score rules)