LTV or Loan-to-Value Ratio: What to Expect With Your Commercial Mortgage Up to $5M
The “Loan to Value Ratio” is calculated by dividing the mortgage balance by value of the commercial property, and multiplying that number by 100%. It can be computed with the following equation:
Loan Amount / Value of the Property x 100 = Loan-To-Value Ratio
LTV is important to understand no matter your loan purpose – whether for a purchase or refinance or for a short-term bridge or hard money loan, the LTV will dictate how much capital you can obtain.
Securing the right LTV or “Loan to Value Ratio” is crucial to meeting your objectives with an investment property. The LTV offered to you by a commercial lender translates directly to how much you can borrow with your loan.
Let us connect to you to the right loan (with the right LTV) today, with no fees unless you secure a new mortgage.
The LTV represents the maximum level of risk a lender wants to take on with your loan. A higher LTV represents a riskier loan for your commercial mortgage lender, and a lower LTV represents a “safer” loan.
Before securing a loan, you need to know two things in order to understand what to expect from your LTV or Loan-to-Value ratio: Your desired loan amount, and the value or sale price of the investment property you are trying to buy or refinance, or improve through a renovation, stabilization, or rehab project. Keep in mind that most commercial lenders require a down payment between 20% and 30% of the property purchase price.
To use an example, let’s consider a property valued at $1.2 million. If you want to buy the property, but can only put down $240,000 of capital (or 20% of the property value), you will need a $960,000 loan in order to complete the purchase.
That means you need to find a lender offering you an 80% loan-to-value (LTV) ratio.
$960,000 / $1,200,000 x 100 = 80% LTV
Notably, the LTV is based on the lower of the sales price or property value. That means that if you’re buying the property for $1.2 million, but it was appraised at $1.4 million, you are subject to the lower sale price, not the higher valuation of the appraisal.
Note: In the event there is more than one mortgage on the property, the combined loan-to-value ratio is used instead. The combined loan-to-value ratio is the sum of the first mortgage plus the second mortgage, all divided by the value of the commercial property, the result being multiplied by 100%.
Combined LTV = ((First Mortgage + Second Mortgage) / Value of the Property) x 100%
80% is the typically the highest LTV available to commercial borrowers.
The lenders in the InvestmentProperty.loans network offer loan-to-values ratios up to 80% for multifamily properties. (1- to 4-unit multi-family properties, which often fall outside the preferred loan parameters for large-balance commercial lenders, are a specialty of our commercial mortgage lenders).
The highest LTV typically offered on business properties and other commercial investment properties (spanning mixed-use, office, retail, and special-purpose properties and ground-up development projects) is a loan-to-value ratio up to 70%. This is true for bridge loans and refinancings, as well.
Most hard money commercial loans are limited to just 65% LTV or lower.
Determine what LTV can help you meet your goals with your investment property, then get a quote here on InvestmentProperty.loans.
Let us connect to you to the right lender today to get started toward your new commercial mortgage.
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