Finance & Accounting
Definition
Loan-to-value (LTV) is the ratio of a loan amount to the appraised value of the asset securing it. LTV = Loan Amount ÷ Property Value × 100. Lenders use LTV to assess risk: the lower the LTV, the more equity the borrower has and the lower the lender's risk. Most commercial real estate lenders cap LTV at 65–80%; residential at 80–97%.
LTV is the most fundamental metric in real estate lending. A $700,000 mortgage on a $1,000,000 property represents 70% LTV. Higher LTV = higher risk for lenders = higher interest rates and stricter terms. Residential mortgages above 80% LTV typically require private mortgage insurance (PMI). Commercial lenders generally cap at 65–75% LTV for investment properties, 75–80% for owner-occupied. In distressed markets, LTV protects lenders: if a borrower defaults, the lender can sell the property and recover the loan — assuming values haven't fallen below the LTV ratio. LTV is distinct from combined LTV (CLTV), which includes all liens on a property. After-repair value (ARV) LTV is used in fix-and-flip lending: loan sized as a percentage of projected post-renovation value. LTV interacts with DSCR in commercial lending — a deal must satisfy both metrics to qualify.
LTV determines how much you can borrow, your interest rate, and whether you need mortgage insurance. For real estate investors, maximizing leverage (subject to DSCR constraints) amplifies returns. A real estate advisor or financial consultant can model the LTV impact on deal returns and help you identify the optimal financing structure for your investment strategy.