What Does LTV Mean?
Oct 05, 2016
Understanding Loan-to-Value (LTV)
Hard money loans are loans issued by private investors or companies that are secured by the underlying commercial real estate. These loans are not based on a credit history or the financial statements of a company—they depend only on the value of the real estate property securing the loan. Such loans can provide funding for investors who need quick access to capital to take advantage of new financial opportunities. Before you apply for a commercial hard money loan, however, it is important to understand loan-to-value, or LTV.
LTV refers to how much a lender will lend to applicants, and it depends on the appraised value of the real estate connected to the loan. Typically, the LTV ratio is no more than 65% for commercial hard money loans, meaning that hard money lenders will typically not lend more than 65% of the value of a real estate property.
For instance, if you own a property worth $100,000, the maximum amount you could borrow in a hard money loan would be $65,000. This 65% LTV ceiling limits the lender’s risk, which also helps them provide funding that borrowers need when they need money fast. Should the borrower not pay and the lender forecloses on the property, the lender can still recoup his or her losses by virtue of the lien on the real estate property.
Choosing A Loan Based On LTV
Some borrowers are attracted to higher LTV offers or unusually low rates from some lenders. However, many of these offers may be a mirage, as some hard money brokers will make offers to borrowers before securing capital for the loans. Hard money lenders like Riverdale Funding are different. Riverdale Funding already has cash dedicated to doling out hard money loans, and is actively looking to put that money to work. Instead of seeking borrowers first and investors later, Riverdale Funding is the investor and looks to lend at competitive rates. Another key advantage of a hard money loan from Riverdale Funding is that the loan does not rely on the borrower’s creditworthiness. It’s based solely on the value of the real estate.
It’s vitally important you work with a lender you can trust. Gather as much information as possible on interest rates, repayment schedules, and penalties. Before making a final decision, consult with a lawyer or financial adviser to decide if the LTV you’re offered is the right choice for you.