In real estate terms, what does the abbreviation “LTV” stand for?

The abbreviation “LTV” stands for Loan To Value. This term is a critical concept in real estate financing and is used to assess the risk of a mortgage loan. The LTV ratio is calculated by dividing the amount of the loan by the appraised value of the property being purchased. A lower LTV ratio often indicates less risk to lenders because it suggests that the borrower has more equity in the property.

For example, if a borrower is buying a home valued at $200,000 and is securing a loan of $160,000, the LTV would be 80% (160,000 divided by 200,000). LTV is vital because it affects the borrower’s interest rate, mortgage insurance requirements, and the overall loan approval process.

Understanding LTV helps both lenders and borrowers gauge financial stability and property investment quality, making it an essential term in real estate transactions.