It compares your loan’s value with the value of your house. Here’s how lenders calculate LTV in the case of a home equity loan: your current loan balance divided by the current appraised value of your home.
If you owe $140,000 on your home, that’s your loan balance. If the home is worth $200,000, you have a 70% LTV: $140,000 divided by $200,000 is .70 or 70%.
The lower the better
If you want to borrow $25,000 in a home equity loan, you add that to the $140,000. So your calculation would now be $165,000 divided by $200,000, which would be .825 or 82.5%. Lenders typically loan up to 85% for a home equity loan. The lower your LTV, the better.
Let’s say you want to buy a house for $100,000, and you need to borrow $90,000. You would have a 90% LTV. You might have a difficult time getting a mortgage with an LTV that high, depending on your lender.