What is loan to value ratio (LTV)?
Simply put, the Loan-to-value (LTV) ratio is the percentage of the value which you are wanting to obtain financing for. If you are wanting a loan of $80,000 on a property with a value of $100,000, it is an 80% loan-to-value request. On a purchase transaction, the value is based on the lower of the appraisal or the sales price.
LTV or loan-to-value ratio is also an important risk tool for lenders, where a higher LTV will require more strength in income, credit scores, assets etc. LTV is also a strong consideration in various types of loans. For example, an owner occupied residence may have a maximum LTV of 96.5% (FHA) where an investment property may be limited to 80% LTV financing.