financing
LTV
Loan-to-Value ratio; the loan amount divided by the property's appraised value or purchase price, expressed as a percentage.
In depth
LTV measures how leveraged a real estate loan is. An $80,000 loan on a $100,000 property is 80 percent LTV. Lower LTV means more buyer equity and less lender risk. Misconception: LTV is not always based on purchase price; lenders typically use the lower of price or appraised value, especially when the buyer overpays. Practically, in seller-financed transactions, sellers reduce risk by keeping LTV below 80 percent through larger down payments. Higher LTV correlates with higher default risk, so sellers may charge higher rates or shorter balloons. Federal regulations require additional underwriting disclosures for higher-priced mortgage loans, which use APR-based triggers tied loosely to LTV. Buyers track LTV over time to plan refinancing or equity withdrawal.
Educational content only. Definitions reflect typical usage in US owner-finance and FSBO transactions; statutes and case law vary by state. Consult a licensed real-estate attorney for fact-specific guidance.