How To Calculate Your Loan-To-Value Ratio?
Loan to value ratio, LTV, is calculated by dividing the proposed loan amount by the current fair market value of the property securing the loan.
For example: If a borrower wants to take out a $50,000 hard money loan on a property worth $100,000 the LTV would 50%.
Combined loan to value ratio, CLTV, is calculated when there are two are more loans on a property.
If there is both a first position loan for $50,000 and a second position loan for $12,000 on a property worth $100,000 the CLTV would be 62%.
The first position lien on the property is always the most secure, which is why most hard money lenders prefer to take that position. That’s why you should not split your funding in a way that makes it difficult for you a second position. Some firms offer specialized funding loans that take into account this division, whereby they will fund 50% of the purchase price contingent on the remainder being financed. Arguably, in this scenario, the first lien has the most secure position, because they are not only covered in equity. Further, they are assured that the borrower has secured funding for the full purchase of the property in question.
The Importance of LTV
LTV is an important factor when assessing your loan approval. Remember our primarily focus is to lend on the net asset valuation, and not the the individuals ability to repay the obligation. Most hard money lenders also require a minimum credit score in order to move forward, while Fulford on the other hand focuses on valuations and exit strategies.
Having adequate equity position in the asset securitizing your loan has proven to be a much better way of determining loan viability. Our loans succeed because all parties have enough skin in the game, whereby the only alternative is success. No one walks when they have substantial interest on table. Let’s get to work and build your portfolio of investments together. Your success guarantees our existence.
Find your LTV today.
-Nathaniel S. Fulford VI