Loan To Value Lending Practice

The relationship between the amount of money a lender is willing to loan and the lender’s estimate of the fair market value of the property that will be pledged as security is called the loan-to-value ratio (often abbreviated LTV ratio). For example, a prospective home buyer wants to purchase a house priced at $80,000. A local lender appraises the house, finds it has a fair market value of $80,000, and agrees to make an 80% LTV loan. This means that the lender will loan up to 80% of the $80,000 and the buyer must provide at least 20% in cash. In dollars, the lender will loan up to $64,000 and the buyer must make a cash down payment of at least $16,000. If the lender appraises the home for more than $80,000, the loan will still be $64,000. If the appraisal is for $80,000 and the buyer is paying $85,000, the loan will be 80% of the appraised value and the buyer must pay the balance of $21,000 in cash. The rule is that price or value, whichever is lower, is applied to the LTV ratio. 

LTV To Owner’s Equity