Loan To Value Ratio - LTV Ratio

A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.

Calculated as:

Investopedia Says:
For example, Jim needs to borrow $92,500 to purchase a $100,000 property. The LTV ratio yields a value of about 92.5%. Since bankers usually require a ratio at a maximum of 75% for a mortgage to be approved, it may prove difficult for Jim to get a mortgage.

Similar to other lending risk assessment ratios, the LTV ratio is not comprehensive enough to be used as the only criteria in assessing mortgages.

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Ratio of money borrowed to fair market value, usually in reference to real property. Residential mortgage loans conventionally have a maximum LTV of 80% (an $80,000 loan on a $100,0000 house).

Relationship, expressed as a percent, between the principal amount of a loan and the appraised value of the asset securing the financing. In a residential mortgage loan, this is the percentage value of the property the lender is willing to finance with a mortgage. For example, a $160,000 mortgage on a $200,000 house has a loan-to-value ratio of 80%. Lenders customarily set upper limits on the loans they are willing to make, and may require borrowers taking mortgages approaching the appraisal value of the property-generally any mortgage loan with a loan-to-value ratio above 80%-to take out Private Mortgage Insurance as added security.

The portion of the amount borrowed compared to the cost or value of the property purchased-that is, mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-value ratio on loans they originate. Loans on Commercial Property by pension funds, banks, and insurance companies are typically limited to a maximum of 70-80% of value. Loans on owner-occupied houses or Condominiums may reach a 90-95% ratio when Mortgage Insurance is used. See also Fha Mortgage Loan, Mortgage Insurance, Private Mortgage Insurance, Va Loan.
Example: Abel bought a $100,000 house and arranged a $90,000 Mortgage loan, resulting in a 90% loan-to-value ratio. Home mortgages at more than an 80% LTV ratio generally require Mortgage Insurance.