HELOC CLTV vs. LTV: What's the difference and how to qualify

You'll come across a lot of jargon in the finance world. It's smart to familiarize yourself with important terms so you can make informed choices. If you’re applying for a mortgage, home equity line of credit (HELOC), or home equity loan, you may hear lenders talk about numbers like your loan-to-value (LTV) and combined loan-to-value (CLTV) ratios. 

The terms sound technical, but CLTV and LTV are simply ratios lenders use to measure how much of your home’s value is tied up in loans. LTV looks at your primary mortgage balance compared to your home’s value. CLTV looks at all loans secured by your home, including home equity loans and HELOCs.

These ratios could come into play if you decide to borrow against your home equity. One of them tends to be much more important in getting approved for HELOCs and home equity loans.

What is HELOC LTV?

LTV is your primary mortgage balance compared to your home’s appraised or market value.

Here’s how to calculate LTV:

• LTV = mortgage balance / home value

For example, say your home is worth $300,000, and your mortgage balance is $180,000. To calculate LTV, divide your mortgage balance by the home value. Then, multiply the answer by 100 to show it as a percentage. Here’s the calculation:

• Step 1: $180,000 / $300,000 = 0.60

• Step 2: 0.60 x 100 = 60% 

Once you calculate your LTV, you can more easily calculate your potential HELOC payment.

What is CLTV?

CLTV is the combined value of all loans secured by your home compared to your home’s appraised or market value. It includes your primary mortgage plus any other loans secured by your home, such as HELOCs or home equity loans. CLTV is used instead of LTV if you have loans in addition to your primary mortgage.

Here’s how to calculate CLTV:

• CLTV = total mortgage loan balances / home value

Let's assume the same numbers from above, plus a $45,000 home equity loan. The CLTV calculation would then be:

• Step 1: $180,000 + $45,000 = $225,000

• Step 2: $225,000 / $300,000 = 0.75

• Step 3: 0.75 x 100 = 75%

CLTV vs. LTV: What’s the difference?

Is CLTV higher than LTV?

Your CLTV will be higher than your LTV if you have any home loans other than the primary mortgage, such as a HELOC or home equity loan. One of the mechanics of HELOCs and home equity loans is that they raise CLTV, but not LTV. If you have only one loan on your home, your CLTV and LTV will be the same number.

Why CLTV matters more for home equity loans and HELOCs

When you apply for a home equity loan or HELOC, CLTV is nearly always more important than LTV. That's because CLTV considers all the debt on your home, making it a more accurate way for lenders to evaluate your home equity.

For example, if you have a $400,000 home with $200,000 left on the mortgage, your LTV is 50%. That looks like plenty of equity to borrow against.

But you could already have other loans against your home. If you have a $160,000 home equity loan, then the total debt on your home, including your mortgage, is $360,000—a 90% CLTV. Most lenders won’t approve you for another home equity loan with that much debt already tied to the house.

Home equity lenders are also normally the last in line if a borrower defaults. After a foreclosure, the lender on the home’s primary mortgage gets paid first. Home equity lenders use CLTV to make sure there’s still an equity cushion, meaning the home is worth more than all the loans on it.

What is considered a good LTV for a HELOC or home equity loan?

If you’re interested in using your home equity to get a loan, you’re probably going to need an LTV well below 80%. Many lenders have an 80% to 85% CLTV limit, which includes all loans on the home. In other words, they want you to still have at least 15% to 20% equity, including the home equity loan. It can sound a little complicated, but knowing how a HELOC works is the first step before applying.

A good LTV in this situation is one low enough to get the home equity loan you want. That could be an LTV of 50%, 60%, 70%—or a different number entirely, depending on your home’s value and how much you want to borrow. Any other loans you have against your home also matter, since lending decisions are ultimately based on your CLTV.

LTV numbers aren’t really considered good or bad, though. Your LTV is probably going to be high when you first buy a home with a mortgage. As you make your home payments, LTV gradually decreases all the way down to 0% when your mortgage is paid off.

Tips to lower CLTV before applying for a home equity loan or HELOC

If you want to lower your CLTV before applying for a loan, here are steps you can take:

• Reduce mortgage debt. Pay down your mortgage or other loans secured by your home.

• Increase your home’s value. Make home improvements or renovations that boost your property's market value.

• Change your borrowing plan. Borrow less money.

• Give it time. Wait for your equity and home value to build.

When you’re ready to apply, Achieve Loans has fixed-rate HELOCs for up to $700,000. Check your rate with no credit impact to see which loan you could qualify for.