Definition
LTV determines how much of a property is financed by debt versus equity. Higher LTV means more leverage (amplifying both returns and risks). Conventional commercial loans typically cap at 75-80% LTV. Investment properties usually require 20-25% minimum down payment (75-80% max LTV). Higher LTV loans may require mortgage insurance and carry higher interest rates.
functions Formula
LTV = Loan Amount / Appraised Property Value × 100%
lightbulb Example
A property appraised at $400K with a $300K mortgage has LTV = 75%. The investor has 25% equity ($100K). If the property drops 20% in value to $320K, equity falls to $20K (6.25% of value)—showing how leverage amplifies losses.
verified_user Key Points
- Measures leverage level
- Lower LTV = more equity = less risk
- Investment properties typically max 75-80% LTV
- Higher LTV amplifies both gains and losses