• Bryan Trent

What is Loan to Value (LTV) and how is it calculated?

Updated: Apr 1

Loan to Value (LTV) is a ratio that compares the size of the loan you intend to take out to the value of the real estate project. Understanding the LTV ratio of a loan helps the lender gauge the financial risk associated with the loan.


In the construction lending world when we refer to the value of the loan we are generally referring one of two things, #AIV or #ARV.

For most new construction projects when determining the #LTV we are mostly concerned with the #FutureValue, or ARV, because we want to know what the project will be worth once it is completed. So, for the purposes of calculating the LTV on a new construction loan Builders Capital will consider the lesser of either the future appraised value, or the contract price in the Purchase and Sale Agreement (#PSA), if the property has been pre-sold.


Calculating the LTV is relatively simple. It is the Total Loan Amount / ARV:

If you know the maximum allowable LTV of a loan and you also know or can estimate the AIV you can easily calculate or estimate the Total Loan Amount as well:

In a scenario where LTV is the primary or only consideration the estimated down payment would simply be the difference between the As Repaired Value and the Total Loan Amount, or:


#loantovalue #ltv #arv #asrepairedvalue #futurevalue

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