The Loan-to-Value Ratio is calculated by dividing the amount of the loan by the value of the property. For example, if the property has a value of $800,000 and the loan amount is $600,000 then the LTV is 75% (600,000 / 800,000).

If the LTV is over 100%, as we often see in today’s market, then the property is considered to be “upside down.” Some will use the term “negative equity” to describe this situation. There is no equity in the property if the LTV is over 100%.

Lenders use the LTV Ratio when underwriting their loans. Generally, the LTV must be 80% or lower for conventional financing, 96.5% for FHA loans, and may be as high as 100% for VA loans. If the LTV on the loan is over 80%, then there is likely to be Private Mortage Insurance (PMI) added to the monthly payment.

Many investors use Hard Money Loans when purchasing or refinancing properties and these usually have stricter LTV requirements around 40-60%.

If there are multiple loans on the property, then an additional ratio is used called the Combined Loan To Value (CLTV).