LTV ratio is defined as which of the following?

• A. NOI / loan amount
• B. loan amount / appraised property value
• C. cap rate
• D. debt service ratio

Answer: (B)

LTV tells lenders how much of a property's value is being financed with debt. It is calculated by dividing the loan amount by the property's value, typically using the appraised value (or the lower of appraised value and purchase price). Because of this, the option that states loan amount divided by appraised property value matches the definition of LTV.

Why this fits: the ratio shows the portion of value funded by the loan, directly measuring leverage and risk to the lender. A higher LTV means more risk and often requires additional safeguards like mortgage insurance.

Why the other ideas don’t fit: using net operating income in the numerator mixes income with loan size and doesn’t relate to the property’s value versus debt. The cap rate uses NOI divided by property value, not loan amount, so it’s a different metric. The debt service ratio (or DSCR) compares income to debt service, not the loan amount to property value.