Real Estate Term of the Day: Loan-To-Value (LTV) Ratio

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.

  1. 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.

  1. 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.