What is the LTV (Loan-to-Value) Ratio?
• What is the LTC (Loan-to-Cost) Ratio? • What is the Net Worth-to-Loan Size Ratio? • What is the Debt Service Ratio? In this article, we’ll focus on the definition and calculation of the financial ratios. Then we’ll briefly discuss some financing options. LTV Ratio Generally speaking, a higher LTV Ratio lowers the risk of an investment. LTV is computed as follows: (Construction Loan Amount / Estimated Fair Market Value) x 100 = LTV% Example: Loan Amount = $300,000, Est. Fair Market Value = $500,000 (300,000 / 500,000) * 100 = 60% Popular American business investments such as self-storage units, retail properties, and industrial steel manufacturers may offer LTV Ratios as high as 70% to 80%. LTC Ratio LTC Ratio is computed with a similar formula as the LTV, substituting the estimated cost of building construction for the estimated fair market value: Example: Loan Amount = $300,000, Est. Cost of Building Construction = $400,000 (300,000 / 400,000) * 100 = 75% In general, the LTC Ratio s
