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What’s the loan to value ratio in commercial real estate?

On Behalf of | Jul 21, 2018 | Commercial Real Estate

Commercial real estate mortgage lenders use loan-to-value ratios (or LTVs) to determine the value of the loan compared to how much a particular property costs. Lenders will calculate LTVs as a division of the loan amount over the purchase price or the property’s appraisal value, whichever is smaller.

If a property loan was for $90,000, for example, and the property costs $100,000, then the LTV is 90 percent. The lower the LTV, for your property, the more likely you’ll be able to get approved for a loan and the more favorable the terms of your loan will be.

This is because, according to lenders, buyers with lower LTVs have a more personal stake in the property, and the lender will see its investment as less risky.

Commercial real estate mortgages are different from residential mortgages in that lenders tend to permit higher LTVs for residential mortgages, sometimes as much as 100 percent. In the case of commercial loans, LTVs may need to be between 65 to 80 percent for the borrower to get approved for a favorable loan.

Are you trying to get approved for a commercial real estate loan for a property in San Antonio? Speaking with a commercial real estate attorney in the area could be enormously helpful.

A local real estate law professional will know the local market well. He or she will also know what qualifications lenders are looking and can help you negotiate favorable terms for your loan that are less likely to get you into financial or legal trouble at a later point in time.