The Loan-to-Value (LTV) ratio is a financial metric that compares the amount of a mortgage loan to the appraised value of the property. Lenders use LTV to assess risk when approving loans, as higher LTV ratios indicate greater financial risk.

How to Calculate LTV Ratio

The LTV formula is:

For example, if you take a $200,000 loan on a property valued at $250,000, the LTV is:

Why is LTV Important in Real Estate?

Lenders use LTV to determine loan eligibility and interest rates. A lower LTV (e.g., <80%) is preferred because it indicates lower risk, often leading to better loan terms. A higher LTV may require private mortgage insurance (PMI) or higher interest rates.

How to Lower Your LTV Ratio

• Make a Larger Down Payment: A higher down payment reduces your loan amount.
  
• Increase Property Value: Renovations and improvements can increase appraisal value.
  

Choose a Less Expensive Property: A lower purchase price means a lower loan requirement.