What is the maximum loan-to-value ratio typically allowed for conventional loans?

The maximum loan-to-value ratio typically allowed for conventional loans is 80%. This means that lenders are usually willing to finance up to 80% of the property's appraised value or purchase price, whichever is lower. The remaining 20% must be covered by a down payment from the borrower.

This ratio is significant because it minimizes the lender's risk; a lower loan-to-value ratio means that the borrower has more equity in the property from the outset. This can help protect the lender if the borrower defaults, as they can recoup their investment more easily with a property that has significant equity.

Higher ratios, such as 90% or beyond, may be available but typically require private mortgage insurance (PMI) to mitigate risk for the lender. Conventional loans often favor the 80% threshold to balance accessibility for borrowers with sound risk management for lenders.