Real Estate Term of the Day: Loan-To-Value (LTV) Ratio
LOAN-TO-VALUE (LTV) RATIO – the portion of the amount borrowed compared to the cost or value of the property purchased – that is, mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-value ratio on loans they originates (Barron’s Dictionary of Real Estate Terms)
Below is a quick article on How To Calculate the Loan to Value (LTV) Ratio of a Real Estate Property by James Kimmons:
This ratio is expressed as a percentage and is derived by dividing the mortage amount by the lesser of the selling price or appraised value.
- Using the selling price or appraised value of the property, determine the available or desired down payment and the desired mortgage amount that would be needed. Home selling for $300,000, and the buyers have $40,000 available for a down payment.
$300,000 – $40,000 = $260,000 desired mortgage amount.
- Divide the mortgage amount by the selling price and convert the result to a percentage.
$260,000 / $300,000 = 0.87 or 87% which is the LTV ratio.
