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What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition, 2nd Edition by Frank Gallinelli

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CHAPTER 32Calculation 26: Loan-to-Value Ratio

What It Means

Loan-to-value ratio (LTV) is the ratio between the total amount of a property’s mortgage financing and the property’s appraised value or selling price, whichever is less. It is expressed as a percentage.

If the selling price is indeed less than the appraised value, the lender will base the LTV on the selling price. You will be tempted to argue that you negotiated a terrific deal, that you are buying below market, and that the lender should use the higher, appraised value in the LTV calculation. If you prevail, be sure to call a press conference because you will be the first investor ever to win this argument.

If you were to purchase a home as a personal residence, the maximum LTV (i.e., ...

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