When applying for a hard money loan, hard money lenders strongly consider the loan to value (LTV) ratio. The LTV ratio is calculated by dividing the loan amount by the total value of the real estate securing the hard money loan.

The LTV ratio is a measurement of risk for the hard money lender to consider. The ratio measures the amount of equity protecting the loan, so the more equity in a property means the less likely the borrower is to default on a loan. Borrowers should also understand this protects the investors who are funding the loan. When both parties feel comfortable it should be a win-win for everyone.

A common mistake when calculating the LTV ratio is overestimating the value of the real estate securing the loan. We generally value a property based on its current use or condition. Some lenders are comfortable basing their calculations on future value.

Lenders should be conservative when underwriting, as it is beneficial to all parties involved. Many lenders may not want to fund a loan that will have too high of an LTV ratio because any change in market conditions could affect the security of the loan. Lenders should NOT want to take back a borrower’s property. A borrower loses a property, lenders and investors end up losing money and no one ends up happy.

Overall, the LTV shows the investors how strong the loan is. At Murk Investments, we generally see our loans around 65% LTV.

At Murk Investments, we are local to the San Diego area and are comfortable working in this market better than a national or regional lender. We lend on properties in most San Diego markets. One of the most important factors we look at is the cash the investor is bringing into the deal. All of our loans fall under a 65% loan to cost.

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