how to calculate the loan to value ratio
interested homebuyers can easily calculate the ltv ratio of a home this is the formula l t v r a t i o m a a p v where m a mortgage amount a p v appraised property value begin aligned ltv ratio frac ma apv textbf where ma text mortgage amount apv text appraised property value end aligned ltvratio apvma where ma mortgage amountapv appraised property value an ltv ratio is calculated by dividing the amount borrowed by the appraised value of the property expressed as a percentage for example if you buy a home appraised at 100 000 for its appraised value and make a 10 000 down payment you will borrow 90 000 this results in an ltv ratio of 90 i e 90 000 100 000 understanding the loan to value ltv ratiodetermining an ltv ratio is a critical component of mortgage underwriting it may be used in the process of buying a home refinancing a current mortgage into a new loan or borrowing against accumulated equity within a property lenders assess the ltv ratio to determine the level of exposure to risk they take on when underwriting a mortgage when borrowers request a loan for an amount that is at or near the appraised value and therefore has a higher ltv ratio lenders perceive that there is a greater chance of the loan going into default this is because there is very little equity built up within the property as a result in the event of a foreclosure the lender may find it difficult to sell the home for enough to cover the outstanding mortgage balance and still make a profit from the transaction the main factors that impact ltv ratios are the amount of the down payment sales price and the appraised value of a property the lowest ltv ratio is achieved with a higher down payment and a lower sales price 