The Loan-To-Value (LTV) ratio is probably the most important of the 3 underwriting ratios.

The Loan-To-Value ratio is defined as:
LTV Ratio = Total Loan Balances (1st mtg + 2nd mtg, etc) / Fair Market Value of the Property.

First let's look at the numerator. If the borrower is only applying for a first mortgage, and there will be no other loans on the property, then the beginning balance of the new loan requested should be inserted in the numerator.

However, if the borrower is applying for a second mortgage, then the "underwriter" (the person who determines whether or not the loan qualifies or underwrites), will insert the sum of the first and second mortgages in the numerator. When the borrower is applying for a second mortgage, the loan-to-value ratio is often known as the combined loan-to-value ratio (CLTV ratio).

Now let's look at the denominator.

Generally the fair market value of a property is determined by an independent appraisal. There is one important exception, however. When the proceeds of a mortgage loan are used to buy the same property that is securing the loan, then that mortgage is known as a "purchase money loan". If the appraisal comes in lower than the purchase price in a "purchase money" transaction, then the lender will use the LOWER of the purchase price or appraisal.

Lenders are often asked by real estate agents and buyers to base their loan on the appraised value rather than the purchase price. Their claim is that they have negotiated a super deal and that the property is worth much more than what they are paying for it. This may be so (although generally untrue); the only true indicator of value is the marketplace in which "a willing buyer and a willing seller, each in full knowledge of the salient facts, and neither under undue pressure, agree upon terms." If the property sells for "X," then it is probably only worth "X." It is a regulatory requirement that lenders always base their maximum loan on the lower of purchase price or appraisal.

Hard money lenders are lending companies offering a specialized type of real-estate backed loan. Hard money lenders provide short-term loans (also called a Bridge Loan) that provide funding based on the value of real estate that has been collateralized for the loan. Hard money lenders typically have much higher interest rates than banks because they fund deals that do not conform to bank standards.

Hard money lenders will offer a range of requirements on the loan-to-value percentage, type of real estate and minimum loan size for a hard money loan.

Hard money risk

Hard money loans are more expensive because they are not based upon traditional credit guidelines which protect investors and banks from high default rates. As hard money lenders do not require the income verification that typical lenders require, they experience higher default rates (and, thus, charge a higher rate of interest). Individuals and companies may opt to take a hard money loan when they cannot obtain typical mortgage financing because they do not have acceptable credit or other necessary documentation.

Hard money collateral

Hard money collateral is typically the real estate loaned on. However it can and does sometimes include other assets of the individual or business borrowing the hard money. In many cases a hard money lender will offer a smaller loan size based upon a lower "Loan To Value Ratio". This means they may opt to loan no more than 65% of the property value. Therefore it is common for real estate investors to offer additional real estate as collateral in order to obtain a larger loan amount. This is known as Cross- Collateralization.

Market

Hard money lenders may serve a regional market, or may offer loans nationwide. Some hard money lenders are represented by brokers who may take a percentage of the loan (called points) in exchange for preparing and submitting the loan documentation (as well as finding a direct lender). Other hard money lenders deal directly with applicants. Other ways hard money lenders may vary include: charging application fees (some charge, others charge fees only when closing); prepayment penalties (some or none); and a focus on investment properties or a willingness to finance owner occupied property as well.
Several online directories offer links to multiple hard money lenders for brokers or borrowers seeking a lender.

Regulation

Several states' usury laws, including Tennessee and New Jersey, prevent hard money lenders from operating with their usual practices. Regulation of hard money not only differs by state, it differs by the status of the borrower in terms of whether or not the loan is made to a business or to a consumer. Consumer's generally have additional protections in individual states. They also have more lending oversight and regulation benefits federally when the loan is issued by a commercial bank, that is federally chartered by the FDIC. Some of the most aggressive loan terms are issued by commercial hard money lenders. DCLXC

Commercial hard money lender

Commercial hard money is issued to a business entity or individual signing on behalf of a business entity or corporation. It can be secured against a commercial property or residential investment property. It can also be secured against a residence in conjunction with a business property as a means of obtaining additional collateral for the lender. That type of additional security is referred to as a blanket mortgage. The sources of asset based commercial hard money loans are generally the following:

• 1. Private Individuals
• 2. Mortgage Companies
• 3. Federal Banks
• 4. SBA Lenders

These commercial hard money lenders all have varying degrees of benefits as well as downfalls in terms of choosing a commercial hard money loan lender. For example, a private individual may offer special terms, however may be unwilling to offer a work out plan as a matter of procedure, in the event the loan becomes delinquent. A federally-chartered bank may offer a competitive loan rate in comparison to an individual, however may demand a high pre-payment penalty fee, costing the borrower more money if they decide to sell or refinance the loan within one to five years.

Hard Money Loan Definition

Loan to Value(LTV) Ratio & Hard Money

Commercial Hard Money Loan Underwriting Guidelines

Types of Hard Money Loans

Investors Hard Money

Mortgage & Real Estate Broker Referral

Hard Money Home