Example

You are going to purchase an income property for $1,227,500. A lender has comitted a loan of $859,000. What's the loan to value ratio?

It's 67.2%. Round to 67%.

Important Ratio

This is the ratio between the loan made on a property and the appraised value of the property. Lenders use this as part of their underwriting criteria. The loan to value ratio determines the upper limit on the amount that they will loan on the property (e.g., 75%).

Lenders use this ratio to attempt to make sure that if the market declines and they must foreclose on the property, the property will not be worth less than the balance due on the loan. Lenders apply another ratio too: the debt coverage ratio.