//Understanding Loan-to-Value Ratio

Understanding Loan-to-Value Ratio

What is LTV?

Loan to value ratio is a risk assessment tool that lenders use in order to gauge the loss they risk when lending money for your investment. The risk of losing the property due to foreclosure, or an inability to make payments on the loan. The lender may acquire the property and try to recompense the money by liquidating the asset. The LTV demonstrates how difficult, or likely, recuperating the initial loan can be. To calculate the LTV, divide the amount of your initial mortgage line, and divide it by the appraised value of the property.

For example, you have $45,000 for a down payment. The property you are looking to purchase costs $90,000. You need a $55,000 loan in order to acquire the property. The LTV would be 61% of the value of the property. The closer the loan amount to the appraised value, the higher the LTV. The further from the appraised value the value of the loan lies, the lower the LTV.

Why does this matter?

With many investors, it plays an influence on how much they are willing to risk in an investment.

The borrower is looking for a loan of $55,000. The property itself is worth $90,000. The higher the LTV, the higher the risk of loss. Lenders look at the LTV and presume that there is a greater risk because the assets behind the loan are less likely to cover the loan. If something were to go wrong, the lender would find it more difficult to regain the initial loan amount based off of the liquid assets behind the loan. The lower the LTV, the more likely the property will pay off because of the value of the asset backing it. For more information on liquid assets, review our article on Hard-Money Loans.

With Taylor Made Lending LLC., our maximum LTV falls at 70%. In other words, we are willing to loan 70% of the value of the asset. When investing in a fix and flip property, the value can influence the LTV. Some properties can be projected to produce substantial returns, making it easy for lenders to comply.

Although LTV can be crucial for your investment, we would like to talk with you about your plans. We offer hard-money loans that can make your dreams come true. Reach out to us if you have any additional questions on LTV’s or hard-money loans. We are happy to answer any questions about the topic.

By |2018-06-04T01:39:59+00:00April 16th, 2018|Press Release|0 Comments