What does 'loan-to-value ratio' (LTV) mean, and why does it matter?

LOAN-TO-VALUE (LTV) = loan amount ÷ property value (appraised or purchase price, whichever is lower). Example: $280,000 loan on a $350,000 property = 80% LTV. Why it matters: RISK ASSESSMENT: Lenders view high LTV as higher risk (less equity cushion); PRIVATE MORTGAGE INSURANCE (PMI): Conventional loans with LTV above 80% require PMI — additional monthly insurance protecting the lender if the borrower defaults; PMI can be cancelled when LTV reaches 80% (by law at 78%); DOWN PAYMENT RELATIONSHIP: 20% down payment = 80% LTV = no PMI; FHA loans allow LTV up to 96.5% (3.5% down) but require MIP (mortgage insurance premium) for the loan's life regardless of LTV; VA loans allow 100% LTV (zero down) with no PMI.