Loan To Value (LTV)

The loan-to-value (LTV) is the amount of financing a lender is willing to fund a property transaction, expressed as a percentage to the appraised value of the property.

For example a LTV of 80% on a $500,000 house means that the loan can be approved up to $400,000 for that house.

While the term is most used in mortgages underwritten by banks, it is also used by private lenders.

In-principle mortgage approvals often state a maximum loan quantum together with a maximum loan to value.

For example, loan approval of 90% LTV up to $200,000. This basically means that the lender would be willing to fund 90% of a property purchase up to a purchase price of $222,222.

This comes with the assumption that the value of the property is the same as the purchase price.

Should a property be purchased at $222,222, and upon appraisal be valued at $200,000, the bank would limit the mortgage to 90% LTV which comes up to $180,000.

The buyer will then have to fund the balance of $42,222 from other sources.