Tag: Loan Amount

The Combined Loan to Value (CLTV) differs from the Loan to Value (LTV) by including all the loans on the property instead of just one primary loan. As discussed in the last post, the LTV is calculated by dividing the loan balance of one loan by the value of the property. The CLTV will add the amounts of all loans on the property and then divide the total by the value of the property.

For example, a property has a value of $800,000 and has two loans on it. The first loan is in the amount of $600,000 and the second loan is for $80,000. The LTV on this property is 75% (600,000 / 800,000) and the CLTV is 85% (680,000 / 800,000).

The lender for the prior example would be concerned with the CLTV on the property even though their money is more secure with the lower LTV of 75%.  They become more hesitant as that CLTV approaches 100%.  Lenders like to see owners with some “skin in the game.”

What is Loan-to-Value (LTV) Ratio?

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).