Loan to Value or LTV is the ratio of the principal loan balance to the After Repair Value of the property, expressed as a percentage. Lenders use the LTV ratio to determine the risk for the lender and the profitability for the borrower. LoanSum will generally lend up to 100% of the purchase price and the loan fee as long as the borrower’s total investment is no more than 75% of the ARV.
The following example will show how to calculate loan to value
| Property ARV or “After Repair Value” | $150,000 |
| Construction Costs | $30,000 |
| Purchase Price | $70,000 |
| Loan Fee (4% of purchase price) | $2,800 |
Borrower’s total investment is calculated by adding purchase price ($70,000) plus loan fee ($2,800) plus construction costs ($30,000), which equals $102,800, and then dividing this sum by the property ARV ($150,000), which equals 0.6853. Multiplying 0.6853 by 100 will give you the borrower’s total investment percentage, which is 68.53%. Since 68.53% is under LoanSum’s maximum ratio of 75%, and if the borrower has sufficient capital to fund construction, and if the property ARV meets LoanSum’s internal market valuation, then LoanSum would lend up to $72,800 (purchase price plus loan fee).
LoanSum uses this form of calculation to determine the risk in the event the borrower defaults. Using this example, if this loan were to go into default prior to any work being completed, LoanSum would still need to complete the rehab to obtain the full retail price. By limiting the risk to less than 75% of the ARV, LoanSum can ensure quick liquidation of the property without losses.
