Can someone explain what LTV is? Having trouble wrapping my head around it. Thanks!
@Jerome Morelos - LTV = Loan to Value
This is basically what the lender is willing to lend. Basically, this is the ratio between the value of the property and the loan amount.
To expand a little on @Vinod Dasani definition of how banks interpret the 'Value' when they lend.
A lender will consider the 'value' at the buy to be the purchase price. No matter how good of a deal you are getting. So if you are owner-occupying, they will generally lend at an LTV ratio of 95% of the price. You'd need to put 5% down. Investment property usually has a requirement of 80-85% LTV or less. At least 20-25% down is required.
If you are refinancing, the value will be determined by an appraisal. I have purchased investment homes at lot value ($23k) and still would have had to put down 25%. The appraisal said 'buyer appears to be purchasing significantly below market value', Doesn't matter at the buy - 'value' is what you bought at. But after seasoning of 1 yr (in my case), I got a cash-out refi of $109k. 'Value' then was a proper appraisal.
So if the lender is asking for 65% LTV, that means that they're willing to lend 65% of the purchase price of the property ?
@Jerome Morelos it depends on what they lend on. Another term you will hear is ARV = After Repaired Value. So some lenders will lend 65-70% LTV of the ARV. Others lend only on the purchase price.
All depends on what type of lender you are using.
@Jerome Morelos - Typically, banks will lend based on the Appraised value or Purchase price whichever is lower when you are purchasing a property (there are exceptions). The LTV in those cases will be 65% of the Appraised Value or Purchase Price (generally whichever is lower).
However as Sean mentioned each lender is different and they do offer different options.
This helped me too! Thank you!
Thank you so much to those of you that had answers to this! Super helpful!
My experience is most lenders, especially Community Banks that have their in-house underwriting establish ARV thru appraisals they have done on the property. If you get a distressed property under contract that is well below the LTV some community banks will role the additional into the note at closing and allow draws against it when you close and rehab the property. In a sellers market if you get such a sweet deal there are always repairs. My last such deal I spent more than what the acquisition price in repairs. But my acquisition + repairs was well below ARV. So it was a great investment.
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