financing
Loan-to-Value Ratio
The ratio of a loan amount to the property's appraised value, expressed as a percentage and used to assess lending risk.
In depth
The loan-to-value ratio (LTV) is a primary lending metric. A 75 percent LTV means the loan equals 75 percent of property value. Lower LTVs reduce default risk because the borrower has more skin in the game and the lender has more equity cushion if forced to foreclose. Misconception: LTV is computed differently for purchase versus refinance, with purchase using the lower of price or appraised value. Practically, in seller financing, sellers often start with 75 to 90 percent LTV and target lower LTVs as principal pays down. Higher-Priced Mortgage Loan thresholds and Section 32 calculations reference LTV indirectly. Note investors price portfolios based largely on LTV, with low-LTV notes commanding premium pricing.
Educational content only. Definitions reflect typical usage in US owner-finance and FSBO transactions; statutes and case law vary by state. Consult a licensed real-estate attorney for fact-specific guidance.