Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

What happens to funding when a property has a high Loan to Value (LTV)?

1. Less funding is available

2. More funding is available

3. Funding becomes more expensive

4. Funding is not affected

The correct answer is: More funding is available

In the context of real estate finance, when a property has a high Loan to Value (LTV) ratio, this typically indicates that a larger portion of the property's value is being financed through debt. A higher LTV ratio can signal to lenders that the property is heavily leveraged. Depending on market conditions and lender policies, this situation can sometimes result in more funding being available, particularly for lower-risk borrowers or in a competitive lending environment where lenders are eager to finance properties with strong potential. When lenders perceive that the borrower has adequate equity or that the property's value supports the level of financing requested, they may increase the amount of funding available. However, it's worth noting that while more funding might be offered, it could also come with a premium, meaning the terms might be less favorable or involve higher costs associated with borrowing as a trade-off for the added risk on the lender's part. The other options do not capture the broader implications of a high LTV correctly. For instance, while it's common to think that funding may become more expensive, this is contingent on the perception of risk rather than a guaranteed outcome. The dynamics of LTV in funding are influenced by various factors including market conditions, the borrower’s creditworthiness, and specific lender policies.