The loan-to-value ratio (or LTV) is one of the most important factors in your loan process. It is used to determine the limits within your housing and debt ratios and where they must fall for you to be approved. It can also determine which fees and the amount(s)you will be charged for your loan. Furthermore, it determines whether you must pay Private Mortgage Insurance (PMI) and use an impound/escrow account.
Your loan-to-value ratio (LTV) is simply the amount you are borrowing divided by the value of the subject property you are purchasing or refinancing. This gives you a simple ratio. For example, a house valued at $100,000 which you intend to purchase with an $80,000 loan (and a $20,000 down payment of your own cash) is said to have an LTV of 80 percent - that is, the loan represents 80 percent of the value of the house.
The value of your property is its appraised value OR the amount you pay for the property (the market value), whichever is lower. In the initial stages of qualification and approval, your property's value is understood to be an estimate. It will be confirmed, if necessary for your particular loan, by a professional appraiser.