What is LTV - Loan to Value Ratio?

Subscribe or check out our full courses at http://evergreen.courses for more content and in-depth Finance & Real Estate training, including FREE mini-courses and Continuing Education (CE).---Loan to Value (LTV) is a metric used by most lenders and the market to indicate on a percentage basis how much leverage or debt a property has on it relative to its total value. So here's the formula. It's pretty simple. Loan amount divided by the property value. Or in the case of an acquisition, it would just be the loan amount divided by the purchase price.FORMULAS: 1. LTV = Loan Amount / Value2. CLTV = Total Amount of All Loans / ValueHere's an example. Imagine you have a property with a value of $1 million and you're getting a loan for, say, 600,000. That would indicate that the loan divided by the property value is an LTV of 60%. Most lenders use LTV as a limit as to how much they will lend against a property when either buying or refinancing. So in investment real estate, typically we see maximum LTVs in the 70 to 80% range, which means that the total amount of the loan relative to the value cannot exceed 70, 75, 80% depending on what that lender's particular limit is.In addition to LTV that we calculate, there's also another term that's related to it called CLTV, which is the cumulative or combined loan to value. An example there would be taking this previous situation, imagine we have a $600,000 first mortgage and then another second mortgage for, say, $150,000. That would be a 15% LTV and the total combined CLTV would be 75%. $750,000 divided by $1 million, cumulative combined LTV of 75%.So LTV is very commonly used throughout the industry. It's important to note that lenders always have a max LTV that they will allow for leverage or debt to be placed on a property. So understanding that prior to acquisition can be very important. This has been a quick overview of Loan to Value. Thanks for watching.See also:Promissory NotesAdjustable Rate Mortgage