Loan-to-Value (LTV) Calculator: Understanding Commercial Real Estate Financing
Published on October 25, 2025 | 6 min read
How much can you borrow for a commercial property? The answer largely depends on the Loan-to-Value (LTV) ratio. LTV is a fundamental risk assessment tool for lenders, determining the maximum loan amount they are willing to provide based on the property's value. A clear understanding of LTV is crucial for structuring your deal and securing financing. This guide explains the LTV formula, typical lender requirements, and how it impacts your loan terms.
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What is Loan-to-Value (LTV)?
LTV represents the ratio of the loan amount to the property's appraised value or purchase price, whichever is lower. It's expressed as a percentage. For example, an LTV of 75% means the lender is financing 75% of the property's value, and you, the borrower, are contributing the remaining 25% as a down payment or equity.
LTV = (Loan Amount / Property Value) × 100
A higher LTV indicates higher risk for the lender because the borrower has less "skin in the game." If the property value declines, a high-LTV loan is more likely to go "underwater," where the loan balance exceeds the property value. This is why lenders have strict maximum LTV limits, which often vary by property type.
Maximum LTV by Property Type
Lenders set maximum LTV limits based on the perceived risk of different property types. Properties with stable, predictable cash flows, like multifamily, typically qualify for higher LTVs than riskier assets like hotels or restaurants.
| Property Type | Typical Max LTV | Best Case (Strong Deal) |
|---|---|---|
| Multifamily | 75-80% | 80-85% |
| Office | 65-75% | 75-80% |
| Retail | 70-75% | 75-80% |
| Industrial | 70-80% | 75-85% |
How LTV Affects Interest Rates
LTV and interest rates have an inverse relationship. A lower LTV means less risk for the lender, which often translates into a lower interest rate for the borrower. By making a larger down payment (e.g., 30-35% instead of 25%), you can often secure more competitive financing, saving you a significant amount of money over the life of the loan. Lenders evaluate LTV alongside other key metrics like the Debt Service Coverage Ratio (DSCR) to determine the final terms of your loan. For an overview of all underwriting metrics, see our commercial underwriting formulas guide.
LTV vs. LTC (Loan-to-Cost)
It's important not to confuse LTV with Loan-to-Cost (LTC). While related, they are used in different scenarios.
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💡 PRO TIP: LTV vs LTC
- LTV is used for stabilized, existing properties and is based on the appraised value.
- LTC is used for construction or heavy value-add projects and is based on the total project cost (purchase price + construction/renovation costs).
Lenders will typically have separate limits for both and will underwrite to the more conservative of the two metrics.
How to Lower Your LTV
If a lender's proposed loan amount is too low, you may need to find a way to reduce your LTV to fit their guidelines. You can achieve this in two primary ways:
- Make a Larger Down Payment: This is the most straightforward approach. By contributing more of your own capital, you reduce the loan amount needed, directly lowering the LTV ratio.
- Increase the Property's Value: This can be done by negotiating a lower purchase price from the seller or, in a refinance scenario, by making strategic capital improvements that increase the property's appraised value.
By understanding how lenders view LTV, you can structure your deals more effectively, anticipate financing constraints, and ultimately secure better loan terms for your commercial real estate investments.
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