REAL ESTATE April 9, 2018

Do you understand Loan-to-Value Ratio on a Mortgage….

Formulation:

Loan Amount ÷ Lessor of Appraised Value or Selling Price = Loan-to-Value Ration

Example:
You are purchase a home for $900,000 and approach a lender with a request to borrow $720,000. Then later the property appraises for the selling price and therefore establishes the property value at $900,000, and you want to know whether the property will qualify for the mortgage you’re requesting.

$720,000 ÷ $990,000  = 80%

So what does an 80% LTV signify?

LTV signifies that the bank has an 80% equity position in your apartment property, and you have 20%. Whether it would be acceptable to the underwriters depends on the policies of the lender.

Good Rule of Thumb:
The real estate investor typically prefers to buy a rental property with as little cash down as possible. This is known as “leverage” because the investor is able to use more of the banks money to make the investment and thus leverage his or her investment. In some case, like with our example, the investor might not have a choice and might have to forsake leverage in order to make the acquisition.