If you're interested in getting a loan for investing in real estate, knowing your loan-to-value ratio is incredibly important. Here, we delve into the ins and outs of LTV.
If you've done a little digging into getting financing for a real estate investment, you've probably come across the term "LTV." What is it and why is it important for you to know? LTV is "loan-to-value" ratio and it's what lenders use to assess the risk of loaning money to a borrower. It's a fairly simple formula — the loan-to-value ratio is the amount of the mortgage divided by the appraised value of the property. For instance, if the borrower is asking for $72,000 to buy a commercial property that's been appraised at $100,000, the LTV would 72 percent.
Here's why this is important: when you go to a bank or broker, they will use this LTV to determine risk. If the risk is relatively low, you'll get more favorable rates and terms. If the risk is higher, you may get stuck with an astronomical interest rate and unfavorable terms. Many banks and brokers won't even deal with a loan-to-value ratio that exceeds 80 percent. However, that doesn't mean you're out of luck if your LTV is above that number. In fact, there are lenders who offer loans on up to 100 percent LTV.
How can a lender offer 100 loan-to-value loans?
If the higher number means more risk, then how are some lenders (like hard money lenders) able to offer funding for a 100 percent loan-to-value ratio? Because hard money lenders use collateral to secure the loan. That means if you have a property — or a line on a good money-making property — you can put that up as collateral, ensuring that your past history, credit score, and financial situation won't stop you from being able to invest in a great opportunity.
Need help getting a 100 LTV commercial loan?
If you've got your eye on a commercial property that's got great income potential and you've been turned down by banks because of your credit score or a previous foreclosure, there's still hope. A hard money lender can sit down with you, go over your options and let you know what kinds of rates and terms you can get. When the bank says "no," we may be able to say "yes." Give us a call today to find out more.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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