What is Loan to value Ratio in a Hard Money Loan

What is Loan-to-Value Ratio in a Hard Money Loan?

Published On: August 7th, 2019Last Updated: July 7th, 2019Categories: LoanTags: , ,

Many lenders require that certain loans be secured with collateral. The actual value of the collateral (usually a property) is used in combination with a variety of factors, such as creditworthiness, to determine how much money a creditor feels comfortable lending you. You’ve probably encountered the term “loan-to-value ratio”, and may be wondering what that means.

Related: Investors are buying huge parts of the housing market. Here’s what you need to know.

What is Loan-to-Value Ratio in a Hard Money Loan?

The loan-to-value ratio (LTV) is a method of determining what percentage of a property’s value can be issued as a loan. The formula is fairly straightforward. Say a property is worth $210,000, and you need to borrow $176,000. You simply divide the desired loan amount by the property value, and the resulting percentage is your LTV:

LTV = 176,000 / 210,000
= 0.84, or 84 percent

Obviously, not every lender would be as comfortable with an 84 percent LTV. Higher LTVs are usually reserved for long-term loans, such as traditional mortgages, that incur less risk to the lender. For shorter loans or projects that carry some risk, a lower loan-to-value ratio is standard, most likely in the 60 percent to 70 percent range.

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Why Use Hard Money?

For many people, the best choice is to use a hard money loan through Paces Funding. That’s because you can use a hard money loan to buy a non-owner-occupied residential or commercial property from Atlanta to Nashville, or in Florida or the Carolinas.

Related: What if you try to flip a house without understanding the market?

You’ll get cash fast and close quickly, which means you won’t have to miss out on a deal because you’re waiting for financing to come through.

Do You Need a Hard Money Loan?

Don’t be fooled by our competitors. We are the TOP hard money lender in Georgia, North Carolina, South Carolina and Nashville, TN. Apply for a hard money loan here or click through our site to find out how we can help you now!