What does LTV stand for in the context of real estate financing?

In real estate financing, LTV refers to the Loan-to-Value ratio, which is a crucial metric used by lenders to assess the risk associated with a mortgage loan. This ratio compares the amount of the loan to the appraised value of the property. Essentially, it helps determine how much equity a borrower has in the property and is calculated by dividing the loan amount by the appraised value and expressing it as a percentage.

A lower LTV indicates that the borrower has a significant amount of equity in the property, reducing the lender's risk, while a higher LTV suggests higher risk since the borrower has less equity. Lenders often use this ratio to establish loan terms, including interest rates, and to determine whether to approve a loan application. Thus, understanding the LTV is fundamental for both borrowers and lenders in real estate transactions.