201 Spear Street, 11th Floor | San Francisco | CA 94105

Loan to Value Ratio (LTV)

We have been purchasing notes, mortgages and real estate contracts for over a decade and we pride ourselves on a unique client experience at the best price possible.

What Is Loan-to-value Meaning?

Loan To Value Ratio (aka LTV) is term and/or calculation that is used in the mortgage lending and mortgage buying industries to determine the dollar amount financed with relation to the collateral value (or property value) that the loan is secured by.

The way to figure the loan-to-value on a real estate transaction is taking the dollar amount that is owed or that is being financed and dividing it by the property/collateral value. The higher the LTV percentage, the riskier the loan or investment is to banks or note buyers.

What Is Loan to Value Ratio Formula?

The loan to value ratio, or LTV, is pretty straightforward to figure out. You just take the amount of the loan you’re getting and divide it by the value of the property you’re buying or refinancing. Then, you usually convert that number into a percentage to get your LTV ratio.


How Do You Analyze Loan to Value Ratio?

Let’s use the following example. Assume that a person is selling a loan to an investor and they want to calculate the loan-to-value before submission. One would take the remaining unpaid balance and divide it by the current property value. Let’s assume that the unpaid balance is $133,567.33 and the property value is $175,500. If we divide the small number of $133,567.33 by the larger number of $175,500 the LTV percentage is: 76%.

Balance Owed: $133,567.33
Property Value: $175,500
LTV = $133,567.33 / $175,500 = 76%


How This Affects the Sale of a Note

Every buyer has a different investment appetite and purchase criteria which comes into play when a seller submits their mortgage loan for pricing on the secondary market. Most buyers have a maximum LTV criteria of 80% (meaning 20% cash down or equity in the property).

Fortunately, we at AX will allow an LTV of 100% on residential notes (meaning nothing put down by borrower) and an LTV of 90% on commercial notes (meaning only 10% put down by borrower). Keep in mind though, the more money that the borrower puts down (or equity in the property), the more your private mortgage loan is worth to a buyer.

Always try to collect the largest down payment possible when creating a seller-financed real estate loan. To learn more about creating a high-value mortgage loan, click here. To learn more about creating a high-value business loan, click here. To view the proper definition of Debt-To-Income Ratio, please click here.

Frequently Asked Questions

What is a good loan-to-value ratio?

A good loan-to-value (LTV) ratio really depends on what you’re aiming for and the context of the loan, but generally, a lower LTV is viewed more favorably. Lenders typically consider an LTV of 80% or lower as good because it indicates the borrower has a significant equity stake in the property, which reduces the lender’s risk. This level of LTV also often helps borrowers avoid the need for private mortgage insurance (PMI), which is usually required when the LTV exceeds 80%. For investment properties or more stringent lending situations, a lower LTV of around 70% or even 60% might be considered more ideal to secure better interest rates and loan terms. 

What does 90% loan to value mean?

A 90% loan to value ratio means you’re borrowing 90% of the property’s value, with the remaining 10% covered by your down payment. For example, on a property worth $100,000, a 90% LTV loan would mean you’re borrowing $90,000 and putting down $10,000 of your own money. This higher LTV ratio indicates a smaller down payment, which might lead to higher interest rates or the need for private mortgage insurance, as it’s seen as a riskier bet for lenders.

What does 80% LTV mean?

An 80% LTV means that the loan amount is 80% of the property’s value, with the remaining 20% being your down payment. Basically, for every $100 of the property’s value, you’re borrowing $80 and putting down $20 of your own money. 

What does it mean 75% loan to value?

A 75% loan to value ratio means that the loan covers 75% of the property’s total value. So, if a property is valued at, say, $200,000, a loan with a 75% LTV would amount to $150,000. The remaining 25% of the property’s value, which would be $50,000 in this scenario, would need to be provided by you as a down payment or might already be covered by your equity in the property if you’re refinancing. 

What does 60 LTV mean?

A 60 LTV means that the loan amount represents 60% of the property’s value. So, if you’re dealing with a property that’s valued at $100,000, a 60% LTV would imply that the loan you’re taking out is $60,000. The remaining 40% of the property’s value — in this case, $40,000 — would be covered by your down payment or, in the case of refinancing, your existing equity. 

What is 55 percent loan to value?

A 55 percent loan to value (LTV) means that the amount of the loan is equal to 55% of the property’s value. In simpler terms, for every $100 the property is worth, the loan will cover $55, and the remaining $45 would need to be covered by your down payment or existing equity in the property. 

What is a 50% loan to value?

A 50% loan to value ratio means that the loan amount is half of the property’s total value. So, if you’re looking at a property valued at, say, $200,000, a loan with a 50% LTV would be $100,000. The other half of the property’s value would come from your down payment or equity you already have in the property if it’s a refinancing scenario. 

What is the lowest loan-to-value?

The lowest loan-to-value (LTV) ratio possible is 0%, which essentially means you’re not borrowing any money against the property value at all. You’re either paying for the entire property in cash or you’ve managed to pay off your mortgage completely. So, a 0% LTV is like having no mortgage hanging over your head — you own the property outright, free and clear. In the real world, though, most people do get a mortgage, so you’ll usually see LTV ratios that are higher than 0%.