Loan-to-Value Ratio (LTV): How to Calculate LTV on Investment Property

What Is Loan-to-Value Ratio (LTV)?

Loan-to-value ratio (LTV) is the size of a loan expressed as a percentage of the property value. It tells a lender how much of the property is financed with debt versus covered by the borrower equity or down payment.

A lower LTV means more equity and less risk for the lender. A higher LTV means a smaller down payment for the borrower but more risk, which usually leads to higher rates, stricter terms, or mortgage insurance.

How to Calculate LTV

Divide the loan amount by the property value, then multiply by 100 to get a percentage. On a purchase, the property value is usually the lower of the purchase price or the appraised value. On a refinance, it is the appraised value.

For example, a $240,000 loan on a $300,000 property is an 80% LTV. That leaves 20% equity, which is a common target for investment property purchases.

Typical LTV Limits on Investment Property

• Conventional rental purchases often cap LTV around 75% to 80%, meaning a 20% to 25% down payment.
• Cash-out refinances on rentals are frequently limited to about 70% to 75% LTV.
• Lower LTV loans usually earn better interest rates because the lender risk is smaller.
• DSCR and portfolio lenders set their own LTV limits based on the property income and the market.
• Owner-occupied loans allow much higher LTV than investment property, which is why house hacking can reduce the down payment.

Worked Example

An investor buys a $400,000 rental and the lender caps the loan at 75% LTV. The maximum loan is $400,000 x 0.75, or $300,000, so the required down payment is $100,000 plus closing costs.

Later, after the property appreciates to $460,000, a cash-out refinance at 70% LTV allows a new loan of $322,000. If the old loan balance is $290,000, the investor could pull out roughly $32,000 in equity before closing costs.

Why LTV Matters for Investors

LTV controls both how much cash you tie up and how much leverage you carry. Higher leverage can raise cash-on-cash return when a property performs, but it also raises the monthly payment and lowers DSCR, which increases risk if rents fall or vacancy rises.

Because LTV, interest rate, and DSCR move together, it is worth testing a few down payment levels in a loan calculator to find the structure that keeps cash flow and coverage healthy.

Frequently Asked Questions