The maximum amount a lender is prepared to advance as a percentage of the value of the eligible collateral is loan-to-value (LTV). LTV is expressed as the ratio of the loan amount (borrowing base) relative to the market value of the collateral securing the loan. It generally depends on the nature of the borrower (individual or business), the type of real estate serving as collateral (residential or commercial) and the property used as collateral.
The LTV of a residential mortgage can be up to 95%, while the loan-to-value for a commercial mortgage may be 50% to 80%. The LTV to a business with a trading history for owner-occupied property, such as offices or shops is higher (e.g., 80%) than the LTV for a new business with no trading history (e.g., 50%). of the purchase price of the property and in rural areas 30%. The LTV in major urban areas is generally higher than in small towns, followed by agricultural properties and then raw land.
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Credit assessment of real estate finance is based primarily on the loan to value of the property. In the underwriting process, the ability of the collateral to support a loan is analyzed.