Loan-to-value (LTV)
Loan-to-value (LTV) is the loan amount divided by the property’s value, shown as a percentage. A $300,000 loan on a $500,000 property is 60% LTV. The lower the LTV, the more equity stands between the lender and a loss.
How loan-to-value works
LTV = loan amount ÷ property value. The value is normally an appraisal or other valuation at origination. Federal real estate lending guidelines for banks define value as an opinion or estimate in an appraisal or evaluation and, for a purchase, use the lower of the purchase price and the estimated value. If there is a senior lien, it counts toward the ratio: a second mortgage’s LTV includes the first mortgage ahead of it (sometimes called combined LTV).
Private lenders often quote several versions of the ratio:
- As-is LTV: the loan against today’s value.
- LTC (loan-to-cost): the loan against purchase price plus renovation or construction budget.
- LTARV: the loan against the after-repair value, for fix-and-flip and construction loans.
Why it matters to a private lender
LTV is the first line of protection on an asset-based loan. If the borrower defaults, the gap between the loan and the property’s value has to cover foreclosure costs, carrying costs and any fall in price. Capital partners and loan buyers set maximum LTVs by loan type, and a lower LTV usually means better pricing and more buyers.
For comparison, bank supervisory guidelines set LTV limits of 65% for raw land, 75% for land development, 80% for commercial construction and 85% for 1- to 4-family construction and improved property.
Example
Hypothetical. A borrower buys a house for $400,000 with an appraised value of $420,000 and borrows $300,000. Using the lower of price and value, LTV is 75%.
Compare the ratios in LTV vs LTC vs ARV.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.