A loan-to-value (LTV) ratio of 95% indicates what about a purchase?

A loan-to-value (LTV) ratio of 95% means that the loan amount is 95% of the property's appraised value or sales price. This implies that the borrower is only putting down 5% of the purchase price as a down payment. A lower down payment reflects a higher LTV, which in this case indicates that the borrower is financing the vast majority of the property’s value through a loan.

In this context, a high LTV ratio often correlates with less equity being invested upfront by the borrower, hence the down payment is relatively small. This situation is common in scenarios where buyers wish to preserve cash for other expenses or investments, further reinforcing the idea of low down payment situations accompanying high LTV ratios.

Conversely, while having a high LTV may suggest increased risk to lenders, it does not automatically categorize the property as low-risk or imply that the borrower has a significant equity stake. Additionally, the loan amount being less than, equal to, or greater than the sales price must be evaluated; a normal scenario would mean that the loan amount is equal to a certain percentage of the sales price rather than exceeding it.