Loan-to-Value Ratio is a risk assessment ratio that lenders perform when considering a real estate loan.
Most senior lenders use Loan-to-Value as one of the most important factors in determining the risk associated with a loan. Lenders divide the principal amount of the loan by the estimated value of the property.
Most lenders will use an appraisal to obtain a value of a property and make an assessment based on their risk appetite for an acceptable loan amount.
Today, loan to values up to 50 to 60 percent are common, while during the real estate boom of the 1980’s it was not uncommon to see loan to values of 90 or 100 percent.