The Role Of LTV Ratios In Hard Money Lending
Every company needs money to expand its business operations. However, having such a large sum of money on hand isn’t feasible. As a result, many businesses are turning to money lenders.
Many Americans are turning to hard money loans as an alternative to the lengthy approvals and stringent criteria of traditional bank loans. LTV is a vital factor to examine when hard money lenders make their final choice.
Therefore, understanding LTV ratios is critical for getting your hard money loans approved. Let’s take a closer look at what an LTV ratio is and what it can do for you.
How To Use LTV Ratios
The loan-to-value ratio is crucial in determining the loan amount for hard money lenders. It’s a ratio that compares how much debt you owe to how much your assets are worth.
It’s an efficient way to assess risk before granting a loan, used by private hard money lenders. For finalizing a loan contract, LTV levels of 50 to 80 percent are doable and ideal.
Any proportion higher than 80% is risky for the private lender, and any percentage lower than 50% is impossible to attain.
How To Find Out Your LTV Ratio
The loan-to-value ratio is a percentage value calculated by dividing the total amount borrowed by the total cost price and multiplying by 100.
(Loan Amount / Total Cost Price) * 100 = LTV
Let’s work it out with an example to understand it better. Suppose you’re buying a $300,000 home with a 20% down payment. So you’ll put down $60,000 and borrow $240,000 to cover the remaining costs. So your LTV ratio is 80% ($240,000/$300,000 * 100 = 80%),making it feasible for the private lender to lend the money.
The Significance Of LTV Ratios
The LTV ratio is one of the most important indicators of the loan application outcome because it describes the level of lending risk. Any private money lender’s underwriting method includes calculating the LTV ratio.
Hard money lenders rely on the LTV ratio to make choices because they don’t do credit checks or other comprehensive checks like banks. The LTV ratio also aids private money lenders in calculating the amount of money they can recover if a borrower defaults on the loan.
Understanding the LTV ratio might assist you in obtaining the best hard money loan deal. Stop by Commercial Private Equity today if you’re looking for a reputable private money lender to receive hard money loans.
We’ve been serving our clients for more than 75 years, and we’ve established a three-tiered financing strategy with various loan-to-value ratios. To give our clients more options in their loan transactions, we offer a variety of specialist loans, including construction, bridge, commercial hard money, raw land, and workout loans.
Contact us today for more details.
