Which term describes the amount of money being loaned compared to the value of the property?

The term that accurately describes the amount of money being loaned compared to the value of the property is the Loan-to-Value ratio, often abbreviated as LTV. This ratio is a crucial metric in real estate financing that represents the percentage of the property’s appraised value or purchase price that is financed through a loan.

To calculate the LTV ratio, you divide the amount of the mortgage by the appraised value or purchase price of the property. For example, if a buyer is borrowing $200,000 to buy a property valued at $250,000, the LTV ratio would be calculated as $200,000 divided by $250,000, resulting in an LTV of 80%.

This ratio is significant because it helps lenders assess risk; a higher LTV indicates that the buyer is financing a larger portion of the property’s value, which can mean a higher risk for the lender. In contrast, a lower LTV usually suggests that the buyer has made a larger down payment, reducing the lender's risk.

Understanding the Loan-to-Value ratio is key in real estate transactions, as it directly impacts the terms of the loan, including interest rates and the potential requirement for private mortgage insurance (PMI).