VA Loan LTV
zero down, cash out, and appraisal gaps
VA Loan LTV Ratio Explained
Loan to Value, or LTV, compares your loan amount to the appraised value of the home. VA loans are known for allowing up to full value financing on purchases, which is why zero down can be possible when the appraisal supports the price. The catch is the appraisal, because VA will not finance above value, so an appraisal gap changes your options fast.
Purchase loans can reach full value
- Common outcome: VA purchase loans can finance up to the full appraised value, which often means zero down when value supports price.
- Down payment is optional: You can still put money down to reduce payment, reduce risk, or lower the funding fee in many cases.
- Value controls the ceiling: The appraisal must meet or exceed the sale price for true zero down without a gap.
- No PMI benefit: Even at full value financing, VA loans do not require monthly private mortgage insurance.
Cash out refinance can reach full value
- Higher ceiling than most loans: VA cash out can go up to the full appraised value, which is higher than common conventional limits.
- Use cases: Borrowers often use cash out to pay off higher rate debt, fund improvements, or consolidate liens into one payment.
- Appraisal matters: Cash out relies on current appraised value, so a conservative value can reduce the cash available.
- Underwriting is real: Expect full credit and income review, plus a clear explanation for how the cash will be used.
IRRRL has flexible LTV in practice
- Appraisal usually not required: Many IRRRL files do not need a new appraisal, which means the lender may not measure a new LTV at all.
- Underwater can still work: Because value is often not re tested, you can sometimes refinance even when the loan balance exceeds value.
- Goal is rate relief: IRRRL is designed to reduce rate, payment, or both on an existing VA loan, not pull cash out.
- Costs roll in: Closing costs can often be financed into the new loan amount, which is why the effective balance can rise.
Appraisal gap, what happens when value is low
- VA finances to value: If the appraisal is below price, VA financing is capped at the appraised value, not the contract price.
- Pay the gap: You can bring cash to cover the difference between price and appraised value if you still want the home.
- Renegotiate price: Many buyers ask the seller to reduce the price to match value, especially if comps support the lower number.
- Request an ROV: If the value seems wrong, you can request a Reconsideration of Value using stronger comparable sales.
FAQs
What does LTV mean on a VA loan?
LTV is the loan amount divided by the appraised value, shown as a percent. On VA loans, high LTV is common because zero down is allowed when you qualify. The appraisal is the limiter, since VA will not finance above value.
Can a VA loan really be zero down at full value?
Yes, as long as the appraised value meets or exceeds the purchase price and you qualify for the payment. If the appraisal comes in low, VA financing is capped at value and you must cover the difference or renegotiate.
How can an IRRRL work if I am underwater?
VA loan to value, or LTV, is one of the fastest ways to sanity check whether a deal is truly zero down, whether a refinance is realistic, and what happens if value comes in short. The VA home loan program is unusually friendly to high LTV borrowing, but only when the appraisal supports the numbers and the loan type rules are followed. This guide establishes a firm baseline for purchase loans, cash out refinances, and IRRRL streamlines, plus the exact moves that solve an appraisal gap without guesswork.
What Is the Loan to Value Ratio on a VA Loan?
LTV is the percentage you get when you divide the loan amount by the home’s value. On VA loans, LTV drives down payment needs, refinance ceilings, and how appraisals affect approval and cash to close. This section defines the moving parts that matter most, so you can read a Loan Estimate or Closing Disclosure and immediately spot whether the lender is using value, price, or a lender overlay.
- LTV is a ratio, not a benefit: LTV measures leverage. It tells you how much you are borrowing compared to value, which is why it influences risk, pricing, and whether a lender requires extra cash or conditions.
- VA uses reasonable value logic: For VA, the practical value number is the appraiser supported figure that becomes the Notice of Value. That value, not your opinion, controls the maximum financeable amount.
- LTV affects different loan types differently: Purchase loans can be structured at very high LTV, cash out refinances have firm ceilings, and IRRRLs can be appraisal light, which changes how LTV is measured.
- Start by identifying which value is being used, contract price, appraised value, or Notice of Value, because changing that denominator changes the LTV and can change down payment requirements.
- Confirm whether the loan amount includes financed costs like the VA funding fee, because financing fees can push effective LTV above 100 percent even when the base purchase is zero down.
- Ask the lender whether they apply an internal LTV overlay for your scenario, since lender rules can be stricter than VA rules and that difference is where surprises happen.
VA Loan Resources
- Complete VA Loan Guide – Eligibility, core benefits, and how VA mortgages work.
- VA Loan Requirements – Credit, income, and service rules you need to qualify.
- VA Funding Fee Explained – Rates, exemptions, and how to roll it into your loan.
- VA Loan Closing Costs – Typical fees and how sellers can help pay them.
- VA Minimum Property Requirements (MPRs) – What homes must have to pass the VA appraisal.
- Compare 2–3 VA Lenders – Get personalized rate quotes from vetted VA-approved lenders.
How Do You Calculate LTV on a VA Purchase Loan?
For a purchase, LTV equals your base loan amount divided by the appraised value, then multiplied by 100. VA purchases often allow a base loan that aligns with the supported value, which is why zero down can align with 100 percent LTV. If you finance the funding fee, your final loan amount may exceed 100 percent LTV, even when your down payment is zero.
- 100 percent LTV is value dependent: Zero down only stays zero down when value supports the contract. If the appraisal is below the sale price, you must solve the gap with cash, concessions, or a value change.
- Financed funding fee changes the math: When the funding fee is rolled into the loan, the loan amount increases while value stays fixed, which can create an LTV above 100 percent even though the purchase itself was financed at 100 percent.
- Down payment is optional, not required: Putting money down can lower payment and may reduce the funding fee tier, but it is a strategy choice. The stronger reason is protecting reserves and affordability.
- Use the appraised value as the denominator, then divide the planned base loan amount by that value and multiply by 100 to get a purchase LTV you can compare across lenders.
- Add any financed funding fee to the base loan amount, then rerun the calculation to see your total financed LTV, since this is what drives balance, interest paid, and some lender overlays.
- Run a stress test by reducing appraised value by a small amount and recalculating, because this shows how sensitive your deal is to a low appraisal and how much cash you would need to close a gap.
How Does Entitlement Affect the Maximum LTV You Can Use?
Your available entitlement determines whether you can finance up to 100 percent LTV with zero down, especially when you already have a VA loan. With full entitlement, program limits are not the main constraint, appraisal support and lender approval are. With partial entitlement, remaining guaranty and county limits can create a down payment requirement above a certain price, which effectively caps zero down LTV.
- Full entitlement keeps zero down simple: When entitlement is full, the main LTV gate becomes value support. If the home appraises at the contract price and you qualify, the deal can stay true zero down.
- Partial entitlement adds guaranty math: When entitlement is tied to another loan, lenders calculate remaining guaranty and compare it to the new loan amount. If coverage is short, you cover part of the gap with cash.
- Second loan scenarios stack risks: Two housing payments plus reduced entitlement can hit at the same time. The safest plan is strong reserves, conservative rental assumptions, and a purchase price under your true zero down ceiling.
- Pull a current COE early and confirm whether entitlement is full or partially used, because this single data point changes whether LTV is a simple appraisal question or a guaranty math problem.
- Ask your lender to calculate your maximum zero down purchase amount with remaining entitlement, then set your home shopping ceiling based on that number rather than a generic preapproval amount.
- If the target home exceeds the zero down ceiling, choose a plan early, bring a defined down payment, restore entitlement by selling, or adjust price, because late changes are what derail closings.
VA guidance on entitlement, loan limits, and appraisal based maximum loan amount
What Happens If the VA Appraisal Comes in Low?
A low appraisal caps your VA loan at 100 percent of the appraised value, not the contract price. That creates an appraisal gap you must solve with cash, price changes, or a value appeal path. VA also has tools that can help before and after the value is finalized, but they require fast action, strong comparable sales, and clean coordination through the lender.
- Pay the gap with cash: You can bring cash to closing to cover the difference between the contract price and appraised value. This keeps the deal intact, but it reduces reserves and increases risk after closing.
- Renegotiate the price: A price reduction to the appraised value is the cleanest fix because it restores true zero down economics. It also protects you from overpaying when market data does not support the contract.
- Request a value reconsideration: If the appraisal missed strong comparable sales, a reconsideration of value can be requested through the lender. Success depends on providing better data, not arguing about the result.
- Ask your agent to review the comparables and verify that the appraisal used the best recent sales, then assemble alternative comps that are closer in location, size, condition, and time of sale.
- Choose the fastest credible option, price reduction, cash gap, or reconsideration request, based on seller motivation and your reserve position, since waiting burns contract days and increases closing risk.
- If you pursue a reconsideration, package the request tightly with a short narrative, clear comps, and supporting data, because reviewers move faster when the evidence is organized and clearly superior.
VA appraisal options including Tidewater, price renegotiation, and reconsideration of value
How Does LTV Work on a VA Cash Out Refinance?
VA cash out refinances generally cannot exceed 100 percent LTV based on the reasonable value. The calculation uses the total loan amount, including any financed funding fee, divided by the reasonable value on the Notice of Value. This section clarifies what 100 percent LTV means in practice, and how to avoid common mistakes when you are refinancing to pay off debt or fund improvements.
- 100 percent is a ceiling, not a target: Just because 100 percent is possible does not mean it is wise. Higher LTV leaves less equity buffer for market swings and can increase approval friction when the file is otherwise marginal.
- Funding fee counts in the LTV math: If you are not exempt and you finance the funding fee, that amount increases the loan amount used in the ratio. This is why some borrowers must reduce cash out to stay under 100 percent.
- Lenders can be stricter than VA: Many lenders apply lower maximums for risk control, especially with lower credit, high debt ratios, or weaker reserves. You must confirm the lender cap early, not after appraisal.
- Start with the Notice of Value and compute LTV using total new loan amount divided by reasonable value, because that is the official VA calculation used for guaranty eligibility on cash out loans.
- Back into your maximum cash out by subtracting payoff balances, financed costs, and required escrows from the maximum loan amount, because cash out is what is left after the math, not what you ask for.
- Use cash out for balance sheet moves that improve stability, like paying off high interest revolving debt, rather than lifestyle spending, since the higher payment and reduced equity can become a long term drag.
VA cash out refinance LTV calculation and 100 percent ceiling policy
Does an IRRRL Have a Maximum LTV?
VA does not set a maximum LTV for an IRRRL, and many IRRRLs do not require an appraisal. Because the refinance is designed to improve an existing VA loan, the focus is on replacing the current loan with a new one that meets the streamline rules. Lenders may still impose their own limits or require an appraisal in certain cases, so you should confirm the baseline before you assume LTV is irrelevant.
- Underwater can still refinance: Because an appraisal is often not required, an IRRRL can be possible even when you owe more than current market value. The goal is payment stability, not extracting equity.
- Loan amount is constrained differently: IRRRLs are not built for cash out. The new loan generally tracks the existing balance plus allowable financed items, which is why LTV can be high but proceeds stay limited.
- Secondary market rules still apply: Even without a VA LTV cap, lenders must deliver a marketable loan. That is why some lenders will request an appraisal or apply overlays when risk factors stack up.
- Confirm you are refinancing an existing VA loan on the same property, because IRRRL eligibility is tied to prior VA use and cannot be used as a first time purchase tool.
- Ask the lender what they will finance into the IRRRL, including funding fee and allowable closing costs, then compare the new balance and payment to ensure the refinance improves your outcome.
- If your home value has declined, focus on payment relief and term control rather than chasing a specific LTV, because the strength of an IRRRL is affordability improvement, not equity leverage.
FDIC summary of VA IRRRL appraisal and loan to value treatment
Why Does LTV Not Trigger PMI on a VA Loan?
VA loans do not charge PMI at any LTV because the VA guaranty replaces monthly mortgage insurance. That means a 100 percent LTV VA purchase can avoid the payment penalty that conventional borrowers often face when they put down less than 20 percent. The best use of this advantage is building a safer budget, since high LTV still increases leverage and can amplify risk when expenses rise.
- Monthly payment stays cleaner: With no PMI line item, more of your housing payment is principal and interest and real ownership costs, not an insurance premium that never reduces your balance. That improves cash flow from month one.
- High LTV does not mean low risk: When you finance most of the value, you have less equity cushion. You still need reserves and realistic budgeting for taxes, insurance, maintenance, and move related costs.
- Funding fee is the trade: Many VA loans have a one time funding fee instead of monthly PMI. Financing it can increase total loan amount and effective LTV, so fee status and exemptions matter.
- When comparing loan options, separate the payment into components, principal and interest, taxes, insurance, HOA, and any mortgage insurance, because that shows what you truly save with VA at high LTV.
- Decide where the monthly savings will go, emergency reserves first, then debt payoff or principal, because using the savings to stretch the purchase price often creates regret later.
- Recheck affordability after closing when escrow updates arrive, since increases in taxes and insurance can consume the no PMI advantage if you did not build margin into the plan.
How Do VA LTV Limits Compare With FHA and Conventional Loans?
VA is the most flexible on purchase LTV, while cash out and insurance rules vary by program and lender. FHA and conventional loans can be competitive, but their insurance structures often penalize high LTV borrowing with ongoing premiums. Use the table to compare the typical ceilings and insurance behavior, then use the steps to compare offers using the same assumptions so you are not comparing marketing headlines.
| Loan Type and Scenario | Typical Maximum Purchase LTV | Typical Maximum Cash Out LTV | Monthly Mortgage Insurance | Appraisal Requirement |
|---|---|---|---|---|
| VA purchase | Up to 100 percent of value for the base loan, with funded fees possibly increasing total financed LTV | Not applicable | None | Yes |
| VA cash out refinance | Not applicable | Up to 100 percent of reasonable value in VA rules, lender overlays can be lower | None | Yes |
| VA IRRRL | Not applicable | Not designed for cash out | None | Often not required |
| FHA purchase | Often 96.5 percent with minimum down payment rules | Often capped lower, program dependent | Required | Yes |
| Conventional purchase | Often up to 97 percent with private mortgage insurance | Often capped lower, lender dependent | PMI commonly required above 80 percent LTV | Yes |
- High LTV costs differ by program: VA removes PMI, FHA charges mortgage insurance, and conventional usually charges PMI above certain LTV thresholds, so your monthly cost comparison must include insurance, not just the note rate.
- Cash out is where rules diverge: VA cash out can reach higher LTV than many alternatives, but the payment and equity tradeoff can be severe. A smaller cash out that improves cash flow is often the smarter move.
- Streamline refinancing is not a cash tool: IRRRLs can help when value is down because appraisal is often not required, but they are not meant to provide meaningful cash back, so expectations must stay realistic.
- Standardize inputs across offers, same home price, same taxes and insurance, same loan term, and the same credit profile, because different assumptions are the number one reason borrowers misread which loan is cheaper.
- Compare total monthly payment plus expected mortgage insurance duration, because PMI can fall off on conventional loans when thresholds are met, while FHA insurance can last longer depending on structure.
- Pick the option that leaves you with the strongest reserves after closing, since reserves reduce default risk and give you flexibility when repairs, PCS costs, or escrow changes hit unexpectedly.
CFPB rules on requesting PMI cancellation based on loan to value thresholds
The Bottom Line
Loan to value on a VA loan is simple math with big consequences. For purchases, you can often finance up to the supported value with no down payment, but the appraisal is the gate, and financing the funding fee can push total financed LTV above 100 percent. If value comes in low, you either renegotiate, bring a controlled amount of cash, or request a reconsideration supported by strong comparable sales. For cash out refinances, VA rules cap LTV at 100 percent of reasonable value, and for IRRRLs, VA does not set an LTV cap and an appraisal is often not required, which can help when value is down. The smartest approach is using VA flexibility to protect your cash flow, preserve reserves, and avoid turning a high LTV benefit into a long term budget strain.
Frequently Asked Questions
What is loan to value on a VA loan?
Loan to value is the loan amount divided by the home’s value, expressed as a percentage. On VA loans it determines whether you can stay zero down, how refinance limits apply, and how a low appraisal affects cash to close.
Is LTV based on purchase price or appraised value?
For purchases, lenders generally use appraised value as the baseline for LTV. If the appraisal is below the contract price, the loan amount is capped at the lower value, creating an appraisal gap you must solve to close.
Can a VA purchase loan be more than 100 percent LTV?
Yes, it can happen when you finance the VA funding fee into the loan. The base purchase may be 100 percent of value, but the funded fee increases the loan amount, which can push total financed LTV above 100 percent.
What is the appraisal gap on a VA loan?
An appraisal gap is the difference between the contract price and the appraised value. VA financing is capped by appraised value, so you must negotiate price, pay the difference in cash, or request a reconsideration to proceed.
What is a reconsideration of value on a VA appraisal?
A reconsideration of value is a formal request, routed through the lender, to review the appraised value using better comparable sales or corrected data. It works best when you provide strong, recent comps and a focused explanation.
What is the maximum LTV for a VA cash out refinance?
VA rules limit cash out refinances to 100 percent of the reasonable value, including any financed funding fee. Many lenders apply stricter overlays, so confirm the maximum early and plan your cash out around approval and payment comfort.
Does an IRRRL require an appraisal to calculate LTV?
Often no. Many IRRRLs do not require an appraisal, which means LTV may not be recalculated using current market value. Some lenders may still request an appraisal based on risk factors or secondary market requirements.
Does a high LTV on a VA loan require PMI?
No. VA loans do not charge monthly PMI at any LTV. The tradeoff is typically a one time funding fee unless you are exempt. You should still budget conservatively because high leverage leaves less equity cushion.
How can I lower my LTV on a VA purchase?
You can lower LTV by making a down payment, negotiating a lower price, or choosing a home with stronger appraised value support. Lower LTV can reduce payment and may reduce the funding fee tier, depending on down payment level.
Why do lenders care so much about LTV on refinances?
LTV drives risk and recoverability if a borrower defaults, which affects lender overlays, pricing, and whether a loan can be sold into the secondary market. Higher LTV often requires stronger credit, stronger reserves, or smaller cash out.
