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Hard money ltv (Loan To Value)

Information for hard loans on rehab purchases and refinance of real estate 

 

Hard money ltv definition :

Hard money ltv (loan to value) is generally much lower than conventional loans ltv since the investment is based only on the  property equity and not on the borrower's ability to pay. The lower ltv provides the investor his only security with enough protective equity in case of any default.  Loan to value is the ratio between the loan amount and the property value in percentage. Eg. If the loan amount is $120,000 and the property value is $200,000 than the ltv is 60%. calculating $120,000/$200,000 X 100= 60%

How much protective equity is needed in hard loans?

The difference between the property market value and the loan amount is the protective equity. In the example above it will be $200,000-$120,000= $80,000. Hard  lenders always anticipate default, after all this is the nature of the hard money investment. In default the protective equity can be wiped out quickly by: A. back payments, unpaid property tax , differed maintenance, broker commission to sell, holding fees, legal fees, effect of bankruptcy, and possible market slow down that would bring down the prices by 5%-30% or more. From an investor point of view the more protective equity he has the better the loan is. 

The table below gives general underwriting guidelines for hard loans ltv. Because of the personal "private" nature of these loans changes are very likely to occur. Rates, terms and desired points are likely to to influence the  ltv, market conditions, credit and the borrower overall financial strength. For more details see  Loan To Value (LTV), hard money rates, or simply apply quickly to receive letter of interest from potential investors.   lendinguniverse.com is a hard money portal where borrowers submit request to hard lenders who are waiting on stand by to review each loan request and reply immediately.

"Quality" in the table below reflects the condition of the property. Since the hard money loans are based on equity mainly, the condition of the property (and not the borrower's credit)  counts great deal in the lender's eyes. "A Quality" indicates a property in excellent condition  that requires no differed maintenance. "B Quality" denote average building quality with some minor differ maintenance.  "C Quality"  indicate  more serious differ maintenance then "B Quality".   "D Quality" require serious investigation prior to loan approval, it can be problems with permits, illegal structure, fire damage, major tenants problem, or any other major problem that significantly reduce the value of the property.  In case of hard money rehab the investor may calculate the ltv on after repair value (ARV) of the property. 

 

LTV for best shoppers

   

LTV for fast hard money loan

A

Quality

B

Quality

C

Quality

D

Quality

A

 Quality

B

 Quality

C

Quality

D

Quality

Residential/ Commercial 1st   
Great area 65-75 60-65 55-65 20-50 60-65 55-65 50-60 0-45
Average area 60-65 55-65 45-60 10-40 55-65 50-65 45-55 0-30
Bad area or remote 55-60 45-55 35-50 0-35 45-55 45-55 40-50 N/A
   
Residential/ Commercial 2nd  
Great area 60-70 55-65 45-60 20-55 55-60 45-55 35-50 0-50
Average area 55-60 45-55 35-50 20-45 45-60 40-55 35-50 0-30
Bad area or remote 45-60 40-55 35-50 10-35 45-55 40-55 30-50 N/A
   
Vacant Land Improved Semi-improved Unimproved Problem land Improved Semi-improved Unimproved Problem land
Great area  35-60 30-55 25-45 0-30 10-40 0-35 0-30 0-20
Average area 30-55 25-50 15-40 0-25 0-30 0-25 0-20 0-20
Bad area or remote 10-35 10-30 0-20 0-20 0-20 0-10 0-10 N/A
   
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