The loan to value ratio is the amount of money you borrow compared with the appraised value of the home you are purchasing. Each loan has a specific LTV limit.
For example: With a 95% LTV loan on a home priced at $100,000, you could borrow up to $95,000. The higher the LTV, the less cash homebuyers are required to pay out of their own funds.
So, to protect lenders against potential loss in case of default, the higher LTV loans (over 80%) usually require a mortgage insurance policy.