What is the maximum loan-to-value (LTV) ratio for a conventional loan?

The maximum loan-to-value (LTV) ratio for a conventional loan is typically considered to be 80%. This means that borrowers can finance up to 80% of the property's appraised value or purchase price, whichever is lower, while being required to make a down payment of at least 20%.

Understanding the importance of the LTV ratio helps in assessing the risk associated with a mortgage loan. A lower LTV ratio signifies that the borrower has more equity in the property, which can reduce the lender's risk. Conventional loans with an LTV above 80% usually require private mortgage insurance (PMI), which protects the lender in case of default and contributes to the overall cost of borrowing.

In contrast, while LTV ratios higher than 80% can be found, especially in specific lending programs or for certain borrower types, the standard for a conventional loan is set at 80%. This standard is fundamental to conventional mortgage lending practices and shapes the considerations for borrowers and lenders alike.