What is a Loan-to-Value Ratio?
A loan-to-value or LTV ratio is a number that matters a great deal to hard money lenders because it helps them gauge the amount of risk that they’re taking with a secured loan, meaning a loan with collateral.
At its core, an LTV is a ratio of the loaned sum in comparison to the market value of the asset for which it’s being secured. For instance, if a private lender ends up loaning 70% of the asset’s total after-repair value (ARV), that 70% would be its LTV ratio.
With that out of the way, let’s discuss the importance of LTV in private money loans.
LTV Is Your Primary Source of Investment
A hard money loan for a fix and flip project or new construction covers most of its total projected ARV. For instance, we offer up to 75% for new constructions and as much as 90% for flipping properties.
The higher the LTV, the less capital you’ll have to raise for your desired property. Their quick closing process means you can purchase it before someone else beats you to the punch.
LTV Helps Bring Down Your Down Payment
You’ve just come across a property your broker tells you would do really well after a few renovations. However, you don’t have enough money down to secure a loan, and there isn’t enough time to raise this money.
Enter hard money loans based on LTV. Many lenders are willing to forgo down payment and the investor’s credit score and focus on the LTV of the property in question. As a result:
- You may just get the loan approved nice and fast.
- Pay for the repairs.
- Get the property ready for a resale.
- Sell the home and pay back the loan with interest with the sum received.
- Avoid long-term payments.
LTV Determines Interest Rate
Like mortgage payments, your interest rate is directly proportional to your LTV. When you sign up for a sizeable lump sum, you also have to gear up for higher interest on every payment until the debt is paid off in full.
A higher down payment may come in handy here, seeing as you’ll be in need of less money overall. The lower your loan, the lower your LTV ratio, which would influence and bring down the interest rate.
Find Hard Money Loan Rates Second to None Online
At Insula Capital Group, we’ve got the most attractive rates and terms on real estate lending for new constructions, fix and flips, single-family, and mixed-use properties.
Apply for a hard money loan today, turn in minimal documentation, get approved, and have the funds in your account within a week.
Speak to us for more information on hard money loan terms.