A good LTV ratio is typically 80% or lower, helping borrowers avoid private mortgage insurance and secure better loan terms. Key strategies to lower your loan-to-value ratio before applying for a mortgage include making a larger down payment, choosing a less expensive home, increasing property value through improvements, or using gift funds. Understanding what a good LTV ratio looks like empowers buyers to improve approval odds and reduce long-term costs.
What is Loan-to-Value (LTV) Ratio?
In simple terms, your Loan-to-Value ratio compares the loan amount you’re borrowing to the total value of the property you’re buying.
LTV Formula:
LTV=(Loan AmountAppraised Property Value)×100\text{LTV} = \left( \frac{\text{Loan Amount}}{\text{Appraised Property Value}} \right) \times 100LTV=(Appraised Property ValueLoan Amount)×100
Example:
- Home price: $400,000
- Down payment: $40,000
- Loan amount: $360,000
LTV=(360,000400,000)×100=90%LTV = \left( \frac{360,000}{400,000} \right) \times 100 = 90\%LTV=(400,000360,000)×100=90%
An LTV of 80% or lower is generally preferred by lenders. Higher LTVs may mean:
- Higher interest rates
- Private Mortgage Insurance (PMI)
- Stricter approval conditions
Why Lowering Your LTV Matters
A lower LTV means:
- Stronger negotiating power
- Lower monthly mortgage payments
- Avoiding or removing PMI
- Improved chance of approval
Especially for FHA or VA loan borrowers or real estate investors, a lower LTV can help you qualify for better terms or increase your investment returns.
How to Lower Your Loan-to-Value Ratio
Let’s break it down with clear, actionable steps.
1. Make a Larger Down Payment
The most direct way to reduce your LTV is by increasing your upfront payment.
Tip:
If you buy a $300,000 home:
- 5% down = $15,000 → LTV = 95%
- 10% down = $30,000 → LTV = 90%
- 20% down = $60,000 → LTV = 80%
Advantages of a larger down payment:
- Avoid PMI
- Lower interest rates
- Smaller loan balance
2. Choose a Less Expensive Home
If your savings are fixed, consider buying a home with a lower price tag to achieve a more favorable LTV.
Example:
- $50,000 down on a $500,000 home = 90% LTV
- $50,000 down on a $350,000 home = ~86% LTV
Real estate professionals can guide buyers toward homes that fit their financial comfort zones without sacrificing long-term value.
3. Increase Your Home’s Appraised Value
An increase in the appraised value lowers the LTV, even if the loan amount stays the same.
Actionable Steps:
- Complete light renovations before appraisal (fresh paint, landscaping, minor repairs)
- Provide comps or data to support a higher valuation
- Stage the home for the appraiser’s visit
4. Pay Off Existing Debts on the Property
In some cases, homebuyers or investors might have secondary loans or liens. Paying these off reduces the total loan balance, lowering the LTV.
Use Gift Funds or Assistance Programs
You may be eligible to receive gift funds from family or participate in down payment assistance programs, especially if you’re a first-time buyer.
6. Refinance Strategically (For Current Homeowners)
Already a homeowner? Home values may have increased, giving you a chance to refinance at a lower LTV.
Example:
- Original home value: $300,000 | Loan: $270,000 → LTV = 90%
- New appraised value: $350,000 | Same loan: $270,000 → LTV = ~77%
Comparative Table: LTV Scenarios
| Down Payment % | Home Price | Loan Amount | LTV | PMI Required? |
| 5% | $300,000 | $285,000 | 95% | ✅ Yes |
| 10% | $300,000 | $270,000 | 90% | ✅ Yes |
| 20% | $300,000 | $240,000 | 80% | ❌ No |
| 30% | $300,000 | $210,000 | 70% | ❌ No |
Pro Tips for Investors and Real Estate Pros
- Leverage equity in one property to increase down payments on another.
- Bundle renovations into purchase loans (e.g., FHA 203(k)) to raise post-renovation value.
- Guide clients to target LTV thresholds that unlock favorable programs (e.g., <80% for jumbo loans).
Key Takeaways
Lowering your LTV isn’t just about approval—it’s about saving money long-term.
Recap:
- Bigger down payment = lower LTV
- Lower-priced home = better ratio
- Boosting appraisal = refinancing edge
- Gift funds & assistance = extra leverage
Before you apply, use a Loan-to-Value calculator and discuss strategies with your real estate agent or lender to find the best approach.
Final Thoughts
Whether you’re just beginning your homebuying journey or advising clients on the best financial path, lowering your LTV can unlock better mortgage options, save on interest, and build equity faster.