Tools and Tips for Real Estate Investors

Defining Loan to Value (LTV) and how it's calculated?

(LTV) What Is It?

It is a lending risk assessment ratio that lenders examine before approving a loan.

How Is It Calculated?

The LTV is determined by what percentage an asset’s sale price or value is attributed to financing. It's determined by dividing the mortgage amount by the appraised value of the property.

Some Implications

If the borrower is requesting a a higher LTV ratio, for an amount that is at or near the appraised value, it's implying that it is riskier for the lender. For example, if the property was foreclosed, the lender may not be able to sell the property for an amount sufficient to cover the balance on the mortgage. It may result in the lender requiring mortgage insurance, or a higher interest rate. It's common that lenders offer the lowest interest rate for loans with a loan to value below 80%.