LTV: Loan to Value Ratio in Regards to Home Loans?
What is LTV?
A loan-to-value (LTV) ratio is the ratio of a loan amount to the value of the asset it’s being used to purchase. Lenders often refer to a borrower’s LTV in order to assess the risk involved in entering a loan agreement with that borrower. The higher your LTV, the riskier the loan is for the lender. Generally speaking, LTVs of 80% and up are considered high.
How do you calculate LTV?
To calculate your LTV, divide the borrowed amount by the purchase price of the home or appraised value of the home. The loan-to-value ratio would be expressed as a percentage. For example, if you take out a loan of $190,000 to purchase a home for $200,000, then your LTV would be $190,000/$200,000 or 95%. This would be a high LTV, since the value of the asset being purchased is higher than the loan amount.