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

What is the preferred Loan to Value (LTV) ratio range for lenders?

1. 30-50%

2. 60-75%

3. 80-90%

4. 100-120%

The correct answer is: 60-75%

The preferred Loan to Value (LTV) ratio range for lenders is typically between 60-75%. This range is most favorable because it indicates a balanced risk for lenders while also allowing borrowers to access financing. An LTV ratio within this range suggests that the borrower has a reasonable amount of equity in the property they are purchasing or refinancing, which reduces the risk for the lender. If property values decrease, a lower LTV helps protect the lender’s investment by ensuring that the loan amount remains below the property's market value. Lenders are generally more comfortable with this ratio, as it strikes a balance between offering borrowers access to credit and mitigating risk for the lender. In contrast, options outside this range, such as 30-50% would indicate a substantial amount of equity which may limit access for some borrowers, while an 80-90% LTV ratio could heighten risk for the lender due to lower borrower equity. LTV ratios exceeding 100% indicate that the loan amount surpasses the property value, leading to potential challenges in loan repayment and increasing the likelihood of defaults, which is typically not acceptable for conventional lending standards.