Loan-to-value, LTV, is the loan amount divided by the value of the property securing it. A 6,500,000 loan on a property valued at 10,000,000 has an LTV of 65 percent.
It measures the lender's cushion: how far the value can fall before the loan exceeds it.
How it is calculated
LTV = loan amount ÷ value. The value is usually the lower of the purchase price and the appraised value for an acquisition, and the appraised value for a refinance.
How lenders use it
Lenders set a maximum LTV by property type, loan program and borrower. Higher-risk properties and transitional business plans generally get lower maximums. The equity the borrower must bring is the price minus the loan plus costs.
LTV, DSCR and debt yield together
LTV depends on the value, which depends on a cap rate assumption. DSCR depends on the interest rate and amortization. Debt yield depends on income alone. A loan is typically sized to the most restrictive of the three, so a deal that passes on LTV can still be limited by DSCR or debt yield.
What to check
LTV is only as reliable as the value behind it. A value that rests on a pro forma NOI or on a low cap rate makes the LTV look better than the loan really is. State which value, and on which NOI, was used.