What is LTV and ITV?

You have probably heard a lot of acronyms thrown around in the note industry. Some of the more common ones are LTV and ITV

LTV stands for Loan to Value. This is shown as a percentage. It is often used to determine “what is the likelihood the payor will continue to make payments” based on equity.

LTV is all the loans divided by the property value (not sale price). For example, if I property is worth $100,000 and the payor owes $80,000, the LTV would be 80% (80,000 divided by 1000,000).  This also means that there is 20% equity in the property.

One important thing to note in figuring out the LTV is that it is always all the outstanding loans divided by the property value. If the payor has a first and second lien, you would add both those together then divide by the value of the property. 

ITV stands for Investment to Value. This price is also shown as a percentage. It is used to determine “what is the likelihood the investor will get their money back in the event of a default.”

ITV is the invested amount divided by the property value. For example, if an investor paid $75,000 for an $80,000 note and the value of the property is $100,000 then the ITV would be 75% ($80,000 or 80% is actually the LTV). 

One important note is when figuring your investment to value; you must include any senior liens (as they have priority above you in the event of a default). For example, if you purchase a $20,000 second lien for $10,000 behind a $40,000 first lien then (assuming the value of the property is $100,000) the ITV would be 50% (your investment of $10,000 plus the $40,000 first lien divided by the property value). 

Understanding both of these terms is important whether you are brokering a note or investing for yourself. 


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