Loan To Value Ratio

The Loan-To-Value or LTV is a ratio between the loan balance and the market value of a real estate investment property expressed as a percentage. The LTV can be used to estimate the amount of equity you have in a real estate investment property. Financial institutions and others lenders examine the Loan-To-Value ratio 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.

Your loan-to-value ratio is an important figure that you need to know when getting or refinancing a loan or requesting the removal of private mortgage insurance (PMI).

It is calculated as percentage of the real estate investment property appraised values or purchase price (whichever is lower) and the amount bank would have to lend you.

Note: If you can convince the bank to use the higher of appraised value or purchase price that would be better for you, but highly unlikely since the bank will almost always use the lesser of the two. You might want to argue that you got a good deal, it is worth giving it a try, it does not hurt to ask.

The lower the LTV ratio for the real estate investment property the better. Lenders usually want a LTV of 70% or lower for real estate investment properties, but check with the bank since the required ratio changes depending on the level of risk the bank is willing to take. Note: It is the responsibility of each investor to determine what should be his or her acceptable Loan To Value Ratio range when assessing a real estate investment property.