LTV requirements are the single most important factor when dealing with California hard money loans. Most other issues surrounding a file can be addressed in one way or another, but the LTV is ultimately the deciding factor that is not only going to dictate whether your loan will be made, but also at what rate and terms it can be secured by.
LTV stands for loan to value. This is an important ratio, and is very easy to calculate. Simply divide the loan amount by the value of the property and express that as a percentage. So for example if we have a loan amount of $100,000 and the property is worth $200,000, we would divide 100,000/200,000 to get ½ (or .5). Expressed as a percentage, that would be 50%.
The lower this loan to value ratio is, the more secure a loan is going to be. It is simply a matter of there being more equity in the property at lower loan to value ratios. Due to this, the lower the loan to value ratio is on a hard money loan the better rate and terms we are likely to be able to secure.
Most of our hard money loans are made at loan to value ratios of 65% or less, although we can go as high as 75% for some properties and some situations. These ratios can be figured in a number of ways.
For rehab loans, we can use an after repair value, or an ARV. We can put together hard money rehab loans in California up to 65% of this ARV number. The benefits of using an ARV number are a higher loan amount; we are still going to the same 65% level, but using a higher value we are able to secure more financing.
For straight purchase loans with no rehab involved, we are typically going to use the purchase price to calculate our loan to value. There are some exceptions to this rule where we can blend an appraised value with the purchase price, but typically speaking we will use the purchase price to determine LTV in purchase transactions.
For properties that have been recently purchased we are typically going to be able to base our loan to value on an appraised value of the property. This means that we typically do not have seasoning requirements.
The lower the loan to value, regardless of the way it is calculated, the lower the rate is typically going to be. For transactions where the loan to value is below 50%, it is not uncommon to be able to secure hard money rates in the single digits. For more information on our hard money programs, please visit us at http://acalending.com.
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