Calculate the loan to value ratio of an apartment property.
Calculating Loan to Value (LTV)
The formula for LTV (the loan to value ratio) is:
LTV = Loan Amount ÷ Total Value
What Is a Loan to Value Ratio?
The LTV ratio is used in apartment mortgage finance and commercial property financing to determine the ratio of a particular debt (like a loan on an apartment property) in relation to the value of the collateral (the property). Lenders use this figure to determine their level of risk and borrower leverage in a transaction. The lower the LTV, the lower the risk as far as lenders are concerned.
This formula is mainly used in the case of standard purchases and refinances. In the cases of multifamily property rehabilitation, or ground-up construction, other metrics like LTC become more useful factors. When LTV is used in the case of a rehab, new construction, or other value-add financing opportunity, it is used as a leverage constraint for the finished, or stabilized value of the property.