Loan-to-ValueĀ "LTV"
LTV is a metric used by most lenders and the market to indicate, on a percentage basis, how much leverage or debt a property has on it relative to its total value.
UnderstandingĀ Loan-to-Value "LTV"
LTV is a metric used by most lenders and the market to indicate, on a percentage basis, how much leverage or debt a property has on it relative to its total value.
So here's the formula. It's pretty simple:Ā
Loan amount divided by the property value.
In the case of an acquisition, it would just be the loan amount divided by the purchase price.
Here's an example: Imagine you have a property with a value of $1 million, and you're getting a loan for, say, $600,000. That would indicate that the loan divided by the property value is an LTV of 60%.
Most lenders use LTV as a limit as to how much they will lend against a property when either buying or refinancing. In investment real estate, we typically see maximum LTVs in the 70% to 80% range, which means that the total amount of the loan relative to the value cannot exceed 70%, 75%, or 80%, depending on what that lender's particular limit is. There's also another related term called CLTV, which is the cumulative or combined loan-to-value.
An example there would be, taking this previous situation, imagine we have a $600,000 first mortgage and then another second mortgage for, say, $150,000. That would be a 15% LTV, and the total combined CLTV would be 75%. $750,000 divided by $1 million equals a cumulative, combined LTV of 75%.
So, LTV is very commonly used throughout the industry. It's important to note that lenders always have a maximum LTV that they will allow for leverage or debt to be placed on a property. So, understanding that prior to acquisition can be very important.