Loan-To-Value-Ratio (LTV)

The loan-to-value ratio (LTV) is stated as a percentage and signifies the ratio made up of the property’s value and the amount it is being financed for. Lenders prefer to keep the LTV low because a high LTV may indicate a high risk loan. For example, if a borrower defaults on the loan, and the lender is forced to resell the property, it is likely that he or she will not be able to recover funds close to the value of the home if the LTV is high and the borrower had not paid much towards the principal of the loan. When borrowers put a large down payment on a home, the LTV is likely to be low and therefore more attractive to lenders. A short-sale purchase may also offer a low LTV because it is being sold for the outstanding loan balance, which may be less than the value.