Apartment Loans and Loan to Value Ratio

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Apartment Loans and Loan to Value Ratio

November 14th, 2008

You may have heard about the loan to value ratio on loans that lenders and bankers use to determine if the property that you are going to purchase is worth the amount of the loan. Different lenders and bankers use different calculations and figures to determine the LTV on a loan, but they usually all follow the same guidelines and general rules for determining what you are going to have to put down on the loan at the time it is granted to you.

Apartment loans are commercial loans that businesses acquire for the purpose of purchasing an apartment building. Usually, this apartment building is already in existence and has tenants that are paying a monthly rent to the owner. There are times however, when the apartment building is being built, or the property is being converted into an apartment building. These types of properties require an apartment loan from a commercial lender to help fund the project and make the purchase. Lenders use the value of the home, which they base on the fair market value and compare it to the amount of the loan. Typically, the maximum amount of the loan that they will issue is 85 percent. This means that the property has a loan to value ratio of 85 percent. Some lenders could go higher or lower, depending on the other factors that are involved with the loan. If a business has excellent credit and has the proven ability to pay their debts and other commercial loan that is existing, lenders may tend to go a little bit higher, but typically 85 percent is the standard.

What that means to business owners and investors who are applying for the apartment loan is that if the property they are going to purchase does not have enough value, they are going to have to come up with more money to put down on the property, as the lenders will only lend 85 percent of the total value of the loan. This usually is not a big concern, but it could be if the property that is being purchased requires a lot of work in order for it to be able to be rented and have tenants. As long as your business is able to afford the new loan payments and afford the renovations and improvements that need to be made on the property, there should not be a problem for you. The property is also going to have to have a professional appraisal done on it in order to make sure that is worth the asking price. With apartment buildings there are also other restrictions that also may have to be adhered to.

The loan to value ratio is a very valuable tool to lenders and bankers and they rely on it heavily when weighing out the decision to approve an apartment loan or not. It is important that you have a good understanding of how the approval process works and what the loan to value ratio means for you and your business. You can certainly find information on the loan to value by searching online as well as find other valuable tools that lenders and bankers use when you apply for an apartment loan or other commercial loan and know what to expect from the loan process.

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