Loan-to-Value (LTV) expresses how much of a property’s value is financed with debt. It is calculated as the loan amount divided by the property’s appraised value or purchase price. A lower LTV means more equity and less risk for the lender; a higher LTV means more leverage. Lenders set maximum LTV limits — commonly 65–80% for commercial real estate — and may track LTV as an ongoing covenant.
LTV = Loan Amount ÷ Property Value
How LTV signals risk
LTV is the lender’s cushion if it has to foreclose and sell:
- Lower LTV — more borrower equity, lower lender risk
- Higher LTV — more leverage, higher lender risk
- Commercial maximums commonly fall between 65% and 80%
LTV and DSCR together
Lenders rarely rely on one ratio. LTV measures leverage against value, while DSCR measures income against debt payments. A loan generally must satisfy both a maximum LTV and a minimum DSCR to be approved.
A property worth $10,000,000 is financed with a $6,500,000 loan. The LTV is 6,500,000 ÷ 10,000,000 = 65%.