The loan-to-value ratio, or LTV, is an important measure that is used by lenders to assess the amount of the loan when compared to the appraised value of the property. It is expressed as a percentage and is a tool used to calculate the amount of the down payment that is necessary for a loan to be approved. It is a useful measure for lenders to use when evaluating the risk associated with a loan, as it can help to determine the amount of equity that the borrower has in the property. This ratio is also a key factor in determining the interest rate on a loan, as lenders are more likely to offer lower rates to those who have a higher LTV.
For example, if a lender requires a 20% down payment on a loan, and the appraised value of the property is $200,000, the loan-to-value ratio would be 80%. This means that the loan amount is 80% of the appraised value of the property, and the borrower would need to make a down payment of $40,000 in order to secure the loan.