How is the Loan-to-Value ratio determined for hard money loans?

With a hard money loan, a borrower can borrow 65-75% of the property value. With most hard money lenders, the loan to value is determined through either an appraisal or a broker opinion of value. A broker’s price opinion might be hired by the hard money lender to assess the property and estimate what the potential appraisal value of a property might be. These brokers assist with the hard money approval process, because they can provide a quicker answer than a traditional appraisal, enabling your lender to more quickly approve your loan application. The high cost and delay associated with opting for a full appraisal is more likely to slow down the approval process, and negate one of the greatest benefits of a hard money loan: quick action.

So what are the criteria by which my LTV ratio is set?

The higher the Loan-to-Value ratio is, the riskier that loan is for the lender, so you’re only  likely to see high LTV ratios for borrowers who have a strong credit history coupled with a promising investment. Experienced developers with a successful investment history, assets, and a strong credit score give lenders some additional confidence.

However, hard money lenders take an investor’s personal investment and credit history into account much less than conventional lenders do. Hard money lenders are more concerned with the investment potential of an individual business venture. Since hard money lenders comprehensively evaluate the investment potential of a property and the likelihood of a successful outcome, there a many factors that could affect your Loan-to-Value ratio. Be sure to have thorough documentation of your construction plan and consult with your lender to agree on the best possible arrangement.