Loan-to-Value Ratio (LTV)

Loan-to-value ratio shows how much of a property's price or appraised value the loan covers. At a $500,000 price, borrowing $375,000 means an LTV of 75%. Investment property lenders cap LTV, and the value in that ratio may itself come partly from a gross rent multiplier on a small rental appraisal.

On one to four unit rentals, the appraiser's value can draw on the market GRM from comparable rental sales. If the market GRM is 9.5 and the property rents for $48,000 a year, the income-based value is $456,000. At 75% LTV, the maximum loan on that value is $342,000, not $375,000.

That is how a high contract GRM becomes a cash problem at closing. When the price sits above what market multiples support, a low appraisal shrinks the loan and the buyer covers the gap. Checking the GRM against comps before writing an offer is a cheap way to avoid that surprise.

Further reading: Loan-to-Value Ratio (LTV) on Wikipedia.