Glossary
Loan to Value (LTV)
Loan to value (LTV) is the ratio of a loan amount to the appraised value or purchase price of the asset securing it, usually whichever is lower. It measures how much equity cushion protects the lender if the borrower defaults and the collateral must be sold.
Formula
Example
A buyer purchases a warehouse for $5,000,000 and requests a $3,750,000 loan. LTV = $3,750,000 / $5,000,000 = 75%. If the appraisal comes in at $4,800,000, most lenders use the lower figure, so LTV becomes $3,750,000 / $4,800,000 = 78.1%. To get back to 75%, the loan would shrink to $3,600,000 and the buyer would need $150,000 more equity.
How it is used in underwriting
LTV is a collateral test. It answers how far the asset's value could fall before the lender's loan is no longer fully covered. A 70% LTV loan can absorb a 30% decline in value, before selling costs, without loss of principal. Lenders set maximum LTVs by asset type and risk, and they use LTV alongside DSCR and debt yield to size loans. LTV also drives pricing: lower leverage usually earns a lower rate. In acquisitions, it determines the buyer's required equity, and it is commonly tested again at refinancing or maturity.
Several nuances trip up borrowers and analysts. Most lenders define value as the lesser of purchase price and appraised value, so overpaying does not increase loan proceeds. Combined LTV (CLTV) includes all liens, which matters when there is a second mortgage or mezzanine loan. Construction lenders focus on loan to cost and loan to stabilized value instead. In business lending, the equivalent is an advance rate against specific collateral or leverage measured as debt to EBITDA, because enterprise value is harder to appraise than real property. LTV also says nothing about whether cash flow can service the debt.
Typical benchmarks
Commercial real estate lenders commonly cap LTV around 65% to 75%, some lenders go to 80% on stabilized multifamily, and residential mortgages can go higher with mortgage insurance. Riskier property types typically carry lower limits.
Run the numbers: LTV Calculator
Frequently asked questions
What is a good loan to value ratio?
For commercial real estate, an LTV of 65% to 75% is common, and lower LTVs usually earn better pricing. For residential mortgages, 80% or below typically avoids private mortgage insurance. Lower LTV means more borrower equity and more protection for the lender if values decline.
Is LTV based on purchase price or appraisal?
For acquisitions, most lenders use the lower of the purchase price and the appraised value. For refinances, they use the current appraised value. This prevents a borrower from increasing loan proceeds by overpaying or by relying on an optimistic appraisal that is not supported by an actual transaction.
What is the difference between LTV and LTC?
LTV divides the loan by the asset's value, while LTC divides it by the total cost to acquire or build the asset. LTC is used mainly for construction and value-add loans, where cost is known but future value is a projection. Lenders often apply both limits and use the more restrictive one.
Related terms
Underwrite your next deal in minutes
Drop a deck or data room. Underridge returns a verdict, investment memo, term sheet and a live model, with every headline figure traced to a page, a formula or a labeled assumption. Ten underwrites free.
Try Underridge free