When you apply for a loan, one of the key factors that lenders consider is your Loan to Value (LTV) ratio.
LTV is a percentage that represents the relationship between the amount of the loan and the appraised value of the asset you are using as collateral.
In other words, it is the amount of money you borrow compared to the value of the asset that secures the loan.
Lenders use LTV to determine the level of risk associated with a loan.
A high LTV ratio indicates that there is a greater risk that the borrower may default on the loan, which could result in a loss for the lender.
Therefore, lenders typically require a lower LTV ratio to reduce their risk.
LTV is most commonly used in relation to mortgage loans, where the collateral is usually the property being purchased or refinanced.