You've Been Warned: This Mortgage Ratio Could Make Or Break Your Loan

While the idea of getting a mortgage might feel financially bleak in 2026, some would-be homebuyers are tired of waiting. Since the Federal Reserve's Federal Open Market Committee began raising interest rates in 2022, as a way to combat inflation, there has been a noticeable stall in the housing market. This is, in large part, due to consumers being unable, or unwilling, to pay the higher monthly costs associated with mortgage interest rates over 6%. However, this could be changing. While the Fed's rate doesn't determine mortgage rates, the two are deeply connected. So, despite the fact that experts don't predict mortgage rates will drop below 6% for many years to come, changing Fed rates did influence the fact that mortgage rates hit a 3-year low in January 2025. 

This likely leaves many would-be buyers and sellers ready to move forward in the housing market after holding off for several years. With that said, it could be time to brush up on some important mortgage considerations and general know-how. While you should absolutely consider things like just how much your income factors into your mortgage payment, there are other considerations you might not be as aware of. One in particular is known as the loan-to-value ratio, or LTV ratio. This number can determine the likelihood that your loan application is accepted by a lender — and even affect the interest rate on said loan. So, before you go through the hassle of assembling a mortgage application, it could be worth quickly calculating the LTV ratio on a potential home ahead of time.

While would-be homebuyers often get caught up in things like closing costs and realtor fees –- without factoring in the LTV ratio on a mortgage none of these other considerations will likely matter. With that said, LTV ratio issues are a relatively common mistake among would-be homebuyers. At its most basic, an LTV ratio is comparing your hypothetical mortgage amount to a home's appraised value. If the ratio is too high it indicates a riskier loan –- meaning a lender could be less likely to approve your application, or might offer you a higher (less competitive) interest rate. Generally speaking, lenders want an LTV ratio at or under 80% -– so if you're looking at a house with a particularly high value, you may want to crunch your own numbers before submitting an application.

To calculate an LTV ratio you need to take your planned loan amount and divide it by the appraised market value of the home you're looking to purchase. Then, you take that number and multiply it by 100 -– giving you a percentage. For instance, if you are hoping to borrow $200,000 for a home appraised at $250,000, you would end up with 0.8 x 100 = 80%. This would put you right on the borderline of what most lenders would be comfortable with, but it could still be good enough to secure a more competitive interest rate on the loan –- depending on the rest of your financial package.