Loan-to-value (LTV) compares the size of a loan to the value of the property securing it, shown as a percentage. The lower the LTV, the more equity you have in the deal. On a purchase, lenders commonly use the lower of the purchase price or the appraised value. On a refinance, it is usually the appraised value.
LTV = loan amount ÷ property value
Example: you buy a rental for $250,000, put $50,000 down and borrow $200,000. $200,000 ÷ $250,000 = 80% LTV. Now suppose the lender caps LTV at 80% and the appraisal comes in at $240,000. The largest loan is $240,000 × 80% = $192,000, so you would need $58,000 down to pay the $250,000 price, before closing costs.
LTV decides how much cash you need to buy and how much you can pull out later in a cash-out refinance. Limits vary by lender, loan type and property. Investment property loans commonly have lower LTV caps than loans on a home you live in, and cash-out refinances are often lower again. On many conventional loans, an LTV above 80% also means paying private mortgage insurance. The common mistake is assuming the lender will use your estimate of value. The appraiser's number is the one that counts, so leave room for it to come in low.