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What is LTV in a mortgage?
Loan-to-value (LTV) is the ratio of a mortgage loan amount to the value of the property securing it, expressed as a percentage. On a purchase, value is usually the lower of the purchase price or appraised value. Lenders use LTV to measure risk and to set program eligibility and pricing.
Lower LTV means more borrower equity in the deal, which generally means less risk for the lender. That's why LTV appears in almost every eligibility matrix and pricing grid, alongside credit score and, on investor loans, DSCR.
LTV looks at one loan. When a property has more than one lien, such as a first mortgage plus a second, lenders also look at combined loan-to-value (CLTV).
The formula
LTV
=
Loan amount
Property value
A $300,000 loan on a $400,000 property is a 75% LTV.
