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
The LTV offered to you by a commercial lender translates directly to how much you can borrow with your loan. It 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 to understand what to expect from your LTV: 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% LTV.
$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).
Typically, 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.
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