Loan-to-value, at a glance.
Loan-to-value is the basic measure of how much equity cushions a lender. Enter the loan amount and the appraised value to see the leverage, and where it sits against typical supervisory comfort.
What LTV tells a lender
LTV is the loan divided by the property's appraised value. A $6.5M loan on a $10M property is 65% LTV. The lower the ratio, the more equity stands between the lender and a loss.
Regulated lenders operate under supervisory LTV limits by property type, and credit policy usually sits below those caps. LTV pairs with DSCR and debt yield to size a loan; the binding constraint wins.
Value is an assumption, not a fact
LTV depends entirely on the appraised value, which is an opinion produced by an appraiser. In hot markets, optimistic values flatter the ratio, which is why lenders review the appraisal rather than accepting the number.
Pairing LTV with debt yield, which ignores value, is a common way to keep leverage honest.
A worked example
A $7,000,000 loan on a property appraised at $10,000,000 is 70 percent LTV. The equity cushion is the other 30 percent: the property's value could fall by $3,000,000 before the loan is worth more than the collateral.
On an acquisition, lenders usually measure LTV against the lesser of the purchase price and the appraised value. A buyer paying $9,500,000 for a building that appraises at $10,000,000 is sized on $9,500,000, so a 70 percent limit allows $6,650,000 rather than $7,000,000. For an acquisition, enter the lower of the price and the appraisal in the value field above.
LTV is one of three limits
Commercial loans are sized by whichever test binds first: LTV against value, DSCR against cash flow, and often debt yield against the loan amount. A trophy property bought at a low cap rate usually runs into the income tests before LTV. A high-yield property in a weaker market usually runs into LTV first.
When there is subordinate financing, lenders also look at combined loan to value, which adds the mezzanine or second lien to the senior loan. A 65 percent senior loan with 15 percent of mezzanine debt behind it is an 80 percent combined LTV, and the senior lender cares about that number because it describes how much equity is really left.
Questions lenders ask
- What LTV do commercial lenders allow?
- It varies by property type and lender, commonly 65% to 75%, within supervisory limits. Lower-risk stabilized assets support higher leverage than transitional ones.
- How do I calculate LTV?
- Divide the loan amount by the appraised value. The tool above computes it and guards against a zero value input.
- Is LTV based on purchase price or appraised value?
- For acquisitions, usually the lesser of the two. For refinances, the appraised value. Lenders use the lower number so a buyer overpaying, or an optimistic appraisal, does not inflate the loan.
- What is combined loan to value?
- The senior loan plus any subordinate debt, such as mezzanine or a second lien, divided by value. It shows how much real equity remains behind all the debt.
- What happens to LTV if the property value drops?
- It rises even though the loan balance has not changed. A loan made at 65 percent can be well above 80 percent after a fall in value, which matters most when the loan has to be refinanced.
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