Hard Money Lending

NOTE: This definition of LTV is for hard money loans. Conventional mortgages and loans may use a slightly different definition.

LTV is a term which is basically a risk assessment ratio that lenders use to determine how much money to lend on a particular property.

High LTV ratios are generally seen as higher risk and thus costs the borrower more money, in the form of a higher interest rate. Hard Money Lenders differ on their acceptable LTVs but typically they will lend on anything under 70% LTV.

Loan-To-Value (LTV) ratio is a mathematical calculation which expresses the amount of a loan as a percentage of the total value of the property. In plain terms, divide the loan amount by the value of the property.

The value of the property can be either the sales price or the appraised value of the property, the lower amount is generally used but many hard money lenders will allow investors to use appraised value rather than sales price.

Examples:

If an investor needs $50,000 to purchase a property worth $100,000, the LTV is 50% and hard money would be easy to secure for such a deal.

If an investor wants $130,000 to purchase a property worth $150,000, the LTV ratio is 87%. Generally a hard money lender would not approve this loan because the LTV is too high.

Hard Money Lenders base their loans on the value of the property not necessarily the credit of the applicant, though some will take credit score into consideration. Having a good relationship and proven track record with your lender will help with marginal deals.

A hard money broker is a loan broker who specializes in placing private funds into loans.

Typically, a hard money broker is an individual with a small staff. There are larger companies that operate as hard money brokers as well.

Hard money brokers have their own database of private lenders, individuals with money to lend (or invest). Most private investors are wealthy and/or retired people who use their IRAs or lines of credit to invest.

Because hard money brokers are independent the structure of hard money loans varies based on the broker's criteria.

Most hard money brokers prefer to lend locally, so that they have better control over the deals should something go wrong and they have to foreclose. However larger companies will do nation-wide lending.