LTC or LTV for down payment?

[David Taylor]

Good morning all, 

I am trying to better understand what we should be basing our numbers on to determine down payment needed for a project using hard money? Example: If we have have a property that has a purchase price of $100,000 that needs $60,000 worth of work, which has an ARV of $200,000. Should we be basing our numbers on: LTV (70% = $140,000) or LTC (88% = $160,000)

1) What are lenders basing our down payment on?

2) What should investors base their numbers on?

How much would the down payment be in this scenario?  I appreciate the help.

Dave

[Ryan Blake]

Originally posted by @David Taylor:

Good morning all, 

I am trying to better understand what we should be basing our numbers on to determine down payment needed for a project using hard money? Example: If we have have a property that has a purchase price of $100,000 that needs $60,000 worth of work, which has an ARV of $200,000. Should we be basing our numbers on: LTV (70% = $140,000) or LTC (88% = $160,000)

1) What are lenders basing our down payment on?

2) What should investors base their numbers on?

How much would the down payment be in this scenario?  I appreciate the help.

Dave

Great question! There is already one good answer but this will be specific to your example.

LTC stands for loan to cost. This will always be based off the the costs needed to do your project. In your case, $160k. So you would take 88% (the LTC number you were using) and multiply it by the $160k. 0.88 x 160,000 = $140,800. This is the maximum amount of the loan when looking at LTC.

LTV stands for loan to value. This will ALMOST always be based off the ARV (after repair value) of the the property when dealing with a hard / private lender. When dealing with a conventional mortgage this will ALMOST always be based on the as-is value of the home. In your case the ARV is $200k. So you would take the 70% (the LTV number you were using) and multiply it by the $200k. 0.70 x 200,000 = $140,000. This is the maximum amount of the loan when looking at LTV.

All lenders that I know of will lend to you based on the LOWER of these two calculations. So you would be able to borrower $140,000. This will leave you with a $20,000 down payment on top of your loan fees, title fees, and any other charges that may be required per your purchase agreement or the agreement with the lender.

I hope this sheds a little light on the LTC and LTV numbers. It isn't one or the other but you use both and then look at the lower of the two.

Please feel free to post more questions in this thread and we can all work on the answers and learn together.