The full explanation
Lenders use it to measure risk: the higher the LTV, the stricter the requirements and the more likely you will be asked for mortgage insurance. Over time, as you pay down principal or the home gains value, your LTV falls, which can let you cancel PMI on a conventional loan.
An example
If the home appraises at its price and your down payment is one fifth, your loan covers four fifths of the value: that is your LTV, the share the bank finances.
With real numbers
Computed with official data for the whole U.S. In your county the numbers may differ.
- LTV with 3.5% down
- 96.5%
- LTV with 20% down
- 80%
On a $332,700 home, the typical U.S. value, if you put $11,645 down (3.5%), you borrow $321,056 and your LTV is 96.5%. If you put $66,540 down (20%), your LTV drops to 80% and a conventional loan no longer carries PMI.
Computed with: American Community Survey (ACS) 5-year estimates (2020–2024) · HUD Handbook 4000.1 (Update 18), II.A.2.a.iv — Minimum Required Investment (October 17, 2026) · Fannie Mae Selling Guide B7-1-01 — Provision of Mortgage Insurance (October 17, 2026)
You will see it in…
- The loan application and the approval letter
- Assistance program requirements (“maximum LTV”)
- The letter to cancel PMI once you drop below a given percentage
