LTV (loan-to-value) is a term that lenders use to describe the ratio between your home's appraised value and your home's loan value. It represents the first mortgage line as a percentage.

Divide your loan amount by your home's appraised or purchase price to calculate your LTV.

Your LTV Ratio Is Crucial

While underwriting your loan, lenders will assess your loan-to-value ratio. Borrowers with lower LTV ratios are more likely to qualify for lower mortgage rates than those with higher loan-to-value ratios. Lenders consider borrowers with a lower loan to value ratio less risky because they have greater equity in their homes. Lenders consider borrowers with a lower loan to value ratio and more equity in their homes less likely to default on their mortgage. Even if they do default, they would still be able to sell the house in foreclosure for at least the amount they owe for it.

Your LTV Ratio and Private Mortgage Insurance

Your loan-to-value ratio will also determine whether you have to pay private mortgage insurance. If you want to avoid the cost of private mortgage insurance, conventional loan borrowers will need to pay a 20% down payment. FHA purchase loans will allow you to have a loan-to-value ratio of up to 96.5 percent. USDA, VA and specialty loans may allow you to have a 100% LTV on a purchase loan.

Refinance Options for Borrowers with an LTV Ratio of More Than 100%

A borrower with a high loan-to-value ratio is considered "upside-down" for their mortgage. This means that the house's value is lower than the loan amount. This is not ideal, but you might still be eligible to refinance. Special refinance programs are available for borrowers who have a loan to value ratio greater than 100 percent. The HARP Refinance is the most popular high-loan-to-value refinance program.