what is ltv in real estate

Loan-to-value (LTV) ratio is a metric that measures the amount of debt used to buy a home and compares that amount to the value of the home being purchased. In real estate, LTV is commonly used by lenders to determine your eligibility for a loan. The LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage. The higher your down payment, the lower your LTV ratio. Lenders use LTV to determine how much risk they are potentially taking on if they decide to lend to you and to figure out which loans you are eligible for based on the size of your down payment or amount of equity that you have in a home. If your LTV is too high, your loan may not be approved, or you may have to purchase mortgage insurance, which protects your lender in case you default on the loan and the lender has to foreclose. A good LTV generally varies by the type of asset being financed. When buying a home, an LTV of 80% or under is generally considered good.