Loan-to-Value (LTV)

Loan-to-value (LTV) compares the size of a loan to the value of the property or asset that secures it. It is the most common way to measure how much cushion a lender has if it must sell the collateral to get its money back.

The formula in words: LTV equals the loan amount divided by the property's value, shown as a percentage.

Worked example. A borrower wants a $750,000 loan on a building appraised at $1,000,000. LTV = $750,000 ÷ $1,000,000 = 75%. The borrower's equity covers the other 25%. The building's value could fall by a quarter before the loan was at risk, before sale costs.

Which value to use matters. For a purchase, US bank guidelines use the lower of the purchase price or the appraised value. Rehab lenders may also quote LTV against the after-repair value (ARV), which is a projection, not today's value. When a property has more than one loan, lenders also look at combined LTV, which adds up all the loans against it. For construction, lenders pair LTV with loan-to-cost (LTC).

Why it matters for lenders

LTV is a lender's main measure of collateral risk. The lower the LTV, the more the property can lose value before the lender takes a loss. A high LTV also means the borrower has less of their own money at stake.

In the US, federal bank regulators publish supervisory LTV limits in the Interagency Guidelines for Real Estate Lending. As of 2026, the limits are 65% for raw land, 75% for land development, 80% for commercial construction and 85% for improved commercial property. Banks set their own limits at or below these and track loans above them as exceptions. Private and hard money lenders aren't bound by these limits, but most set their own maximums by property type.

How it works in practice

A bridge lender gets a request on a small apartment building. Its policy caps LTV for this property type. The loan officer sizes the loan from the broker's value estimate and sends a term sheet.

The appraisal then comes in below the broker's estimate. At the requested amount, LTV now breaks the policy cap. The underwriter has three choices: cut the loan, ask for more collateral, or request an exception from the credit committee. She cuts the loan amount and documents why.

LTV doesn't stay fixed. Many lenders recalculate it when they get a new appraisal or modify or renew a loan. If the appraisal sits in a PDF and the LTV in a spreadsheet, the two drift apart. Keeping the value, its date and its source on the loan record keeps the ratio current.