Ultimate Guide to Loan-To-Value for Real Estate Investors

Hey there, future real estate moguls! Ready to dive into the world of properties and investments? Great! You’re about to learn about one of the most important numbers in real estate: the Loan-To-Value ratio, or LTV for short. Understanding LTV is like having a secret key that unlocks the doors to smarter investing decisions. Whether you’re buying your first rental property or adding another gem to your growing portfolio, knowing about LTV can help you navigate the seas of financing and risk management like a pro.

In this guide, we’re going to break down everything you need to know about LTV in simple, easy-to-understand terms. We’ll cover what LTV is, why it matters, how to calculate it, and how it affects your investment strategy. Plus, we’ll share tips on how to improve your LTV to secure better loan terms and make your real estate investments even more profitable. So, grab your notebook, and let’s get started on this exciting journey to mastering LTV!

Remember, real estate investing is an adventure, and every successful adventurer needs a map. Consider this guide your map to uncovering the treasure hidden within Loan-To-Value ratios. Let’s explore together and make your real estate dreams a reality!

What is Loan-To-Value (LTV)?

Imagine you want to buy a piece of cake. The whole cake costs $10, but you only have $2. So, you ask a friend to lend you $8 to buy the whole cake. In this story, the cake is a house, and the money your friend lends you is a loan. The Loan-To-Value (LTV) is like figuring out how big a slice of the cake you’re buying with your own money compared to the whole cake. If the whole cake is the value of the house, and your $2 is your down payment, then the LTV tells us how much of the house (or cake) your loan is paying for.

LTV is super important in real estate investing. It helps you understand how much loan you’re getting compared to the price of the property you’re buying. A higher LTV means you’re borrowing more money, and a lower LTV means you’re using more of your own money to buy the property. Knowing about LTV can help you make smart choices when you’re buying property to invest in.

Let’s dive into why LTV matters, how to calculate it, and how it can affect your real estate adventures!

LTV tells us how much loan you’re getting compared to the value of the property. It’s like comparing a slice of cake to the whole cake. The bigger the slice, the more loan you have compared to the property’s value.

Why LTV Matters

Think of LTV as a tool in your toolbox. Just like a hammer or a screwdriver, it helps you do a job. In real estate investing, that job is making smart decisions about buying properties. Here’s why LTV is such a handy tool:

  • It affects your loan terms: The size of your LTV can change the kind of loan deal you get. A lower LTV usually means better interest rates and less extra costs, like private mortgage insurance (PMI).
  • It shows how much skin you have in the game: A lower LTV means you’ve put more of your own money into the property. This is good because it shows lenders and partners that you’re committed to your investment.
  • It helps you manage risk: A high LTV can be risky. If property values go down, you might owe more on your loan than your property is worth. A lower LTV gives you a safety cushion, making your investment more secure.

LTV matters because it helps you understand the risks and rewards of your real estate investments. It’s like a guide that helps you make decisions that are right for you and your money. So, keeping an eye on your LTV is a smart move for any real estate investor!

How to Calculate LTV

Calculating Loan-To-Value (LTV) is like figuring out how much of a giant pizza you’ve eaten and how much is left. It tells you how big your loan is compared to the value of your property. Here’s a simple way to do it:

  1. Find out your loan amount: This is how much money you borrowed to buy your property. Let’s say it’s $90,000.
  2. Know your property’s value: This could be the price you bought it for or its current market value. Imagine it’s worth $100,000 now.
  3. Divide your loan by your property’s value: So, you’d divide $90,000 (your loan) by $100,000 (your property’s value).
  4. Turn it into a percentage: After dividing, you’ll get a number. Multiply it by 100 to turn it into a percentage. That’s your LTV!

In our example, dividing $90,000 by $100,000 gives you 0.9. Multiply by 100, and you get 90%. That means your LTV is 90%. This number shows that your loan covers 90% of your property’s value, and you’ve paid for the other 10% with your own money.

Understanding your LTV ratio helps you see how much equity you have in your property and if you need to work on improving it. It’s a key number in the world of real estate investing, so take the time to calculate it and understand what it means for you!

The World's Greatest Real Estate Deal Analysis Spreadsheet™
The World’s Greatest Real Estate Deal Analysis Spreadsheet™

The World’s Greatest Real Estate Deal Analysis Spreadsheet™ (a free download) automatically calculates loan-to-value for you.

Maximum LTV for Different Loans

When you’re looking to invest in real estate, there are different kinds of loans you can get. Each type has its own rules about how much money you can borrow compared to the value of the property. This is like different games with different rules on how to win. Let’s look at the maximum LTV for some common loan types:

  • FHA loans: These loans are friendly for first-time buyers. They let you borrow up to 96.5% of the property’s value. It’s like being able to buy almost the whole cake with just a little bit of your own money.
  • VA loans: If you’re a veteran, these loans are a great deal because they can let you borrow up to 100% of the property’s value. It’s like getting the whole cake without needing any of your own money upfront.
  • USDA loans: These loans are for buying homes in rural areas. Like VA loans, they can sometimes let you borrow the whole value of the property, 100%.
  • Conventional loans: These are a bit more strict. They usually only let you borrow up to 80% of the property’s value. So, you need to use more of your own money to get the cake.
  • Hard money loans: These loans are different because they focus more on the property and less on your credit. The LTV varies a lot, but it’s often around 50% to 70%. It means you need to use a significant chunk of your own money, but it’s a good option if you’re looking for a quick deal.

Knowing the maximum LTV for these loans helps you figure out which one is the best fit for your real estate adventure. It’s like choosing the right tool for the job to make sure you can achieve your investment goals.

Maximum Loan-To-Value For Cash Out Refinances

Typically for investment properties the most cash you’ll be able to pull out using a cash out refinance is up to a 75% loan-to-value for a 1-unit property (single family homes, condo, townhome). It is 70% for 2-4 units (duplexes, triplexes or fourplexes).

Plus, if the property has been for sale in the last 6 months, it is typically called at 70% regardless of whether it was 1-unit or multi-family. And, you typically cannot have a property listed for sale when apply for a cash out refinance.

Additionally, with the exception of the delayed financing guidelines, you will not be able to complete a cash-out refinance within 6 moths of purchasing the property.

At What Loan-To-Value Does Private Mortgage Insurance Drop Off?

Think of Private Mortgage Insurance (often abbreviated PMI) as an umbrella you have to carry when it’s raining. If you borrow a lot of money for your house (a high LTV), you have to carry this umbrella. But when the sun comes out (your LTV gets lower), you don’t need the umbrella anymore. So, when does this happen? When can you put the umbrella away?

For most loans, PMI goes away when your LTV ratio falls below 78%. This is like saying once you’ve paid off enough of your house so that you own more than 22% of it, you don’t have to pay for PMI anymore. How do you get there? You can pay down your mortgage over time, or if your home’s value goes up, that helps too.

Here’s a simple way to look at it:

  • Automatic removal: Once you hit that magical number (78% LTV), your lender is supposed to automatically take away the PMI. It’s like the rain stopping, and the lender takes your umbrella for you.
  • Requesting removal: If you think you’ve reached this point because your home’s value went up, you can ask your lender to reconsider. It’s like showing them the sun is out, so you don’t need the umbrella anymore.

Remember, getting rid of PMI means you have more money in your pocket each month. It’s worth keeping an eye on your LTV and talking to your lender about dropping PMI when the time is right.

The Impact of High LTV

Having a high Loan-To-Value (LTV) is like riding a bike with no helmet. It might be okay if everything goes smoothly, but if you hit a bump, it could hurt. A high LTV means you borrowed a lot of money compared to the value of your property. Here’s how it can impact you:

  • Less wiggle room: If the market goes down and your property’s value drops, you might owe more than your property is worth. This is risky and can make it hard to sell or refinance your property.
  • Higher costs: Loans with high LTVs usually have higher interest rates and require PMI. This means your monthly payments are higher, costing you more money over time.
  • Lower Price Resiliency™: With a high LTV, your investment is more sensitive to changes in the market. If property values go down, you feel the hit harder.
  • Lower Rent Resiliency™: If you’re renting out the property, a high LTV can mean lower profits. You’re paying more each month for your loan, which can eat into your rental income.

Having a high LTV isn’t all bad, especially if you’re getting started and don’t have a lot of money for a down payment. But it’s important to know the risks and have a plan to lower your LTV over time. This will make your investment safer and more profitable in the long run.

Having a high LTV means that you’re less resilient to a drop in prices before you’d be upside donw on the property. See Price Resiliency™ for a more detailed explanation on how we measure this and use it to gauge your risk.

How to Improve Your LTV

Improving your Loan-To-Value (LTV) is like lightening your backpack on a long hike. The lighter it is, the easier and more enjoyable the journey. Here are some ways to make your LTV better, making your real estate investment journey smoother:

  • Make extra payments on your mortgage: This is like taking items out of your backpack. Every extra payment reduces your loan balance faster, improving your LTV.
  • Improve your property: Upgrading your property can increase its value. It’s like adding patches or cool pins to your backpack that make it more valuable.
  • Reassess your property’s value: Sometimes, properties increase in value over time. Getting a new appraisal can show that your property is worth more than when you bought it. It’s like discovering a hidden pocket in your backpack that makes it more useful.
  • Refinance your mortgage: If interest rates have dropped or your credit has improved, refinancing can give you a loan with a better rate or a lower balance. It’s like swapping a heavy backpack for a lighter one.

Improving your LTV not only makes your investment safer but also opens up opportunities for better financing in the future. It’s a smart move that can lead to big wins down the road. So, keep an eye on your LTV and take steps to improve it whenever you can!

Having a high LTV means you have a smaller amount of equity in the property resulting in higher Return on Equity. Learn more about how we measure this with our Return on Equity Quadrant™.


Understanding Loan-To-Value (LTV) is like having a map on a treasure hunt. It guides you through the world of real estate investing, helping you make smart choices about your loans and properties. We’ve talked about what LTV is, why it matters, how to figure it out for different loans, and what to do when you want to improve it. Remember, a good LTV can make your investment journey safer and more profitable.

But don’t stop here! Keep learning about LTV and other important real estate concepts. The more you know, the better prepared you’ll be to make smart investment decisions. And remember, every investor starts somewhere. With time, patience, and smart moves, you can achieve your real estate goals. So, go out there, use what you’ve learned, and start making your real estate dreams come true!

Stay optimistic, keep learning, and happy investing!

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