Loan-to-Value Ratio (LTV)
The loan amount as a percentage of a property's appraised value, showing how much of the purchase a lender will finance.
Loan-to-value, or LTV, compares the loan amount to the appraised value of the property securing it. If a lender offers $750,000 against a building worth $1,000,000, the LTV is 75%. The remaining 25% is the equity the borrower brings to the table.
Commercial LTV limits vary by asset type and program. Conventional CRE loans usually cap out at 70 to 75%, agency multifamily can reach 80%, and bridge lenders often stay at 65 to 70% because of added risk. On a purchase, the lender uses the lower of the price or the appraised value.
Lower LTV means more borrower equity and less lender exposure, which typically earns a better rate. Higher LTV stretches proceeds but usually comes with pricing add-ons or a personal guarantee.
Formula
LTV = Loan Amount / Appraised Value
Worked Example
A borrower buys an industrial property appraised at $2,000,000 and requests a $1,400,000 loan. LTV = 1,400,000 / 2,000,000 = 70%. The borrower funds the other $600,000 as a down payment.
Why It Matters
LTV decides how much cash you need at closing and how a lender prices risk. Push the ratio too high and you may trigger rate add-ons, a guarantee, or a decline. Keep it modest and you often win better terms.
Related Terms
Related Programs and Tools
Frequently Asked Questions
What is a typical maximum LTV on a commercial loan?
Conventional CRE loans usually top out at 70 to 75%. Agency multifamily can reach 80%, and bridge or hard money lenders often stay near 65 to 70%.
Does LTV use the purchase price or the appraisal?
On a purchase, lenders use the lower of the contract price or appraised value. On a refinance, they use the appraised value.