What loan-to-value (LTV) means for commercial property, how to calculate it, typical commercial LTVs and why high LTV matters for Colorado owners.
Loan-to-value (LTV) is the loan amount as a percentage of the property’s appraised value.
Commercial LTVs typically run 55% to 70%, lower than the 80% or more common on home loans. LTV is one of the two tests in how commercial loans are sized.
This guide covers the formula, the value lenders actually use, typical maximums by loan type, how LTV interacts with income in Colorado mountain markets, and what a high LTV means when you want to sell or refinance.
How to Calculate LTV
To calculate LTV, divide the loan amount by the appraised value.
LTV = Loan amount / Appraised value
For example, a $6,000,000 loan on a $10,000,000 office building is a 60% LTV.
Work it backward to find the largest loan a lender will offer. Multiply the value by the lender’s maximum LTV. A 65% maximum on a $10,000,000 building allows a loan of up to $6,500,000.
The buyer’s equity is the other side of the same number. At a 65% LTV, the buyer brings 35% of the value, plus closing costs, in cash or other equity.
Which Value Lenders Use
Lenders do not simply take the asking price. Federal banking guidelines define value as the market value estimate in an appraisal or evaluation. For a purchase, the guidelines say value means the lesser of the actual acquisition cost or that estimate.
That rule matters when a buyer agrees to pay more than the appraisal supports. Suppose you agree to pay $2,000,000, but the appraisal comes in at $1,800,000. A 70% LTV loan is then $1,260,000, not $1,400,000, and the buyer covers the $140,000 gap in cash.
For commercial deals of more than $500,000, federal rules for FDIC-supervised banks generally require an appraisal by a state-certified appraiser. At or below that amount, the bank may use a simpler evaluation instead.
Combined LTV When There Is More Than One Loan
Combined loan-to-value (CLTV) adds every loan secured by the property. It divides the total by the appraised value or the purchase price, whichever is less.
| Loan | Amount |
|---|---|
| First mortgage | $1,000,000 |
| Second loan | $400,000 |
| Total debt | $1,400,000 |
| Property value | $2,000,000 |
| Combined LTV | 70% |
CLTV is how an SBA 504 deal is viewed as a whole. The bank’s first loan covers 50% and the CDC loan 40%, so total debt is about 90% of the project cost. See how the 504 split works.
Why LTV Matters
A lower LTV means less risk for the lender and often a better rate.
LTV also measures the risk an investor takes by using leverage. Lenders apply an LTV limit together with the DSCR test lenders apply.
LTV matters for three reasons:
- It sets your cash requirement. The lower the maximum LTV, the more equity you must bring.
- It cushions the lender. If the borrower defaults, the lender recovers its money from a sale. A 60% LTV leaves a 40% cushion if values fall.
- It shapes your return. More leverage magnifies gains and losses on your equity. The effect shows up in cash-on-cash return on a leveraged deal.
Typical Maximum LTV by Loan Type
Maximum LTV depends on the lender, the property type and how strong the income is. The table below lists published limits and program structures.
| Loan or rule | Maximum LTV | Notes |
|---|---|---|
| Bank supervisory limit, improved property | 85% | Federal guideline ceiling; banks usually lend below it |
| Bank supervisory limit, commercial construction | 80% | Applies to commercial, multifamily and other nonresidential construction |
| Bank supervisory limit, land development | 75% | Lots being improved for building |
| Bank supervisory limit, raw land | 65% | Unimproved land |
| Freddie Mac small multifamily, terms over 7 years | 80% | With a minimum 1.25x debt coverage ratio |
| Freddie Mac small multifamily, 5- to 7-year terms | 75% | With a minimum 1.25x debt coverage ratio |
| Freddie Mac small multifamily, full-term interest-only | 65% to 70% | Lower leverage when no principal is repaid |
| SBA 504, owner-occupied | About 90% combined | 50% bank, 40% CDC, 10% borrower in the standard case |
The bank figures come from the federal Interagency Guidelines for Real Estate Lending. They are supervisory ceilings, not targets. A bank can exceed them only for well-documented exceptions, and its total of such loans is capped against its capital.
Most investment property loans land well below these ceilings, which is why 55% to 70% is the common range. Lenders reduce LTV further for special-purpose buildings, weak tenants, short lease terms and thin markets.
LTV, LTC and Other Leverage Ratios
Lenders use related ratios for other kinds of loans.
- Loan-to-cost (LTC): Used for construction and heavy renovation. It divides the loan by the total project cost. See construction loan leverage.
- Loan-to-stabilized-value: Some bridge lenders size on the value once a building is leased up. See how bridge loans are sized.
- Debt yield: Net operating income divided by the loan amount. It ignores interest rates and cap rates.
How LTV and DSCR Work Together
A lender sizes the loan on LTV and on the debt service coverage ratio, and offers the smaller of the two results. In a market with low cap rates, the income test often limits the loan before LTV does.
Here is a worked example with the same income in two Colorado markets. The interest rate is an assumption for illustration only, not a quote.
- Net operating income (NOI): $350,000 a year
- Lender maximum: 65% LTV and a 1.25 minimum DSCR
- Assumed loan: 7% interest, 25-year amortization (annual payment about 8.48% of the loan)
| Aspen-type pricing | Grand Junction-type pricing | |
|---|---|---|
| Cap rate used | 5% | 7% |
| Value (NOI / cap rate) | $7,000,000 | $5,000,000 |
| Loan at 65% LTV | $4,550,000 | $3,250,000 |
| Annual debt service on that loan | About $385,900 | About $275,600 |
| DSCR on that loan | About 0.91 | About 1.27 |
| Largest loan at 1.25 DSCR | About $3,301,000 | About $3,301,000 |
| Loan the lender offers | About $3,301,000 (47% LTV) | $3,250,000 (65% LTV) |
The cap rates reflect RMCRE’s own reports. The Aspen 2026 year-to-date report shows cap rates of 4.5% to 6.0%. The Mesa County Q2 2026 report shows 7.0%.
The lesson is plain. In Aspen-priced markets, the income cannot carry a 65% loan, so buyers bring far more equity than the LTV limit suggests. In Grand Junction-priced markets, both tests line up. For the inputs, see calculating NOI for a lender.
How Property Type Changes the LTV
Lenders lower the maximum LTV when a property would be harder to sell or re-lease after a default. The same lender may quote very different leverage on two buildings of the same value.
| Property | How lenders usually view LTV | Why |
|---|---|---|
| Stabilized apartments | Among the highest leverage | Many renters spread the risk; agency programs such as Freddie Mac lend on them |
| Multi-tenant retail, office or industrial with long leases | Moderate | Income is steady, but tenants can leave at lease end |
| Single-tenant building | Depends on the tenant and lease term | One vacancy takes all the income |
| Hotel or motel | Lower | Income changes nightly and depends on operations |
| Special-purpose building | Lower | Few buyers want a car wash, bowling alley or church |
| Raw land | Lowest; 65% federal bank ceiling | No income to repay the loan |
In mountain resort towns, seasonality adds another layer. Lenders look closely at how income holds up between ski and summer seasons. Strong historical figures and long leases help an appraisal and a loan request. For land deals specifically, see financing land in Colorado.
How to Lower Your LTV
You can improve your LTV by raising the value or reducing the loan.
- Bring more equity. A larger down payment is the direct route.
- Pay down principal. Amortizing loans reduce LTV every year.
- Raise net operating income. Higher rents and lower expenses raise value under the income approach.
- Document the value. Give the appraiser current leases, a clean rent roll and recent capital work.
- Use a second source of capital. Seller financing or a partner’s equity can fill a gap, but a second lien raises combined LTV.
Common LTV Mistakes
Owners and buyers often trip on the same points.
- Counting on the contract price. The lender uses the lower of price or appraised value.
- Ignoring the income test. A 70% LTV quote means little if the property’s income cannot cover the payment.
- Forgetting closing costs. Equity must also cover fees, reserves and lender costs. See what commercial closings cost.
- Assuming the value holds. A balloon loan is refinanced at the value on the maturity date, not the purchase date.
- Overlooking loan covenants. Some loans require the borrower to keep LTV below a set level or pay down the loan.
High LTV in Today’s Colorado Market
Owners with a high LTV face a squeeze when values or income dip. RMCRE brokers note that high loan-to-value positions can make a sale hard without the owner bringing cash to closing. See selling commercial property in Colorado.
Here is how that happens. An owner who owes $3,400,000 sells for $3,500,000. After commissions and closing costs, the net proceeds may fall short of the loan payoff. The owner must then write a check to close.
The same squeeze hits at refinance. A loan that was 65% of value at purchase can be 80% or more if values fall. The new lender will lend only up to its own limit, so the owner must pay down the gap. See refinancing with less equity than planned.
Local cap rates show why this varies by town. RMCRE’s Montrose Q2 2026 report shows cap rates moving from 7% to 8%. A rising cap rate lowers value for the same income, which pushes LTV up. In RMCRE’s Mesa County first-half 2026 figures, cap rates moved the other way, from 7.75% to 7.0%.
In the resort towns, low cap rates mean the DSCR test usually decides loan size. The Aspen 2026 year-to-date market report shows cap rates of 4.5% to 6.0%. Buyers there often use more cash than LTV limits alone would require.
Frequently Asked Questions
What is a good LTV for a commercial property?
For most investment property, a loan between 55% and 70% of value is typical. A lower LTV usually earns better pricing and leaves more room if values fall. Owner-occupied SBA 504 deals reach about 90% combined.
Can you get 80% LTV on a commercial property?
Yes, in some programs. Freddie Mac’s small multifamily loans allow up to 80% on terms of seven years or more with a 1.25x coverage ratio. SBA 504 and some owner-occupied bank loans also go higher than typical investment loans.
Does LTV use the purchase price or the appraisal?
For a purchase, banks use the lesser of the price and the appraised or evaluated value. On a refinance, they use the current appraisal.
What happens if my LTV goes above 100%?
The loan is larger than the property’s value, often called being underwater. Selling or refinancing then requires cash from the owner. Some loans also let the lender demand a paydown if LTV covenants are broken.
Is LTV or DSCR more important?
Lenders apply both and offer the smaller loan. In low cap rate markets, DSCR usually limits the loan. In higher cap rate markets, LTV usually does.
Getting the Value Right
LTV depends on the appraised value. For a quicker, informal estimate before a sale, owners can ask for a broker opinion of value; RMCRE’s valuation counseling supports refinancing decisions. Learn how Colorado property is valued.
Rocky Mountain Commercial Real Estate has connected partner brokers across Colorado mountain towns since 2010. Our members track local cap rates, sales and vacancy, which is the data an appraiser and a lender will look at.
