A loan to value ratio (LTV) is used by lenders to determine how much money they are willing to lend on a mortgage compared to the appraised value of the property or the selling price, which ever is lower. For example, an LTV ratio of 80% means the lender will lend up $80,000 if the property appraised for $100,000. The balance of 20% or in this example, $20,000, would be cash and would be the equity in the property as of the day of closing.
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Loan to value ratio is a financial term used to measure the risk associated with a loan relative to the value of the asset being financed.
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