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Factors Considered By A Small Commercial Mortgage Lender When Determining LTV

Commercial Mortgage
Posted on 
December 26, 2013

A small commercial mortgage lender takes plenty of details into account before deciding on the loan-to-value (LTV) percentage they’re willing to offer a borrower.

The LTV is the ratio of the loan amount to the value of the property, and it is determined by the borrower and the property. Here are the factors of a loan scenario which can affect this percentage:

  • The property type: Certain property types, such as auto repair shops and industrial buildings tend to be considered riskier than other properties, like mixed-use buildings or apartments. Because of this, the maximum LTV offered for various property types differs.
  • The upkeep of the building: The shape that the property is in can also affect the LTV, since deferred maintenance can indicate a lack of personal investment in a property. If your building is well-kept, it shows lenders that you care about your property and your business, which means you’ve got a better chance of getting a higher loan amount.
  • The borrower’s credit: If your borrower has a higher credit score, they’re more likely to be offered a higher LTV. Borrowers with higher credit scores are seen as less risky because they’ve better shown their ability to repay their debts.
  • The building’s cash flow: A property’s cash flow is an important part of the decision for small commercial lenders that use this to measure a borrower’s ability to repay the loan. If the building cash flows well, the lender will be more likely to offer the borrower more money.
  • The building’s location: Where your borrower’s property is located will also come into play when it comes to the LTV. Properties located in rural, suburban and urban areas all have pros and cons, and all of these will be taken into account by the lender.
  • The borrower’s experience: Generally, lenders will consider a higher LTV for borrowers with more experience. For example, let’s say your borrower is looking to purchase a multifamily property, and already owns and operates ten successful properties. This borrower is more likely to get a higher LTV than a borrower purchasing a multifamily building for the first time.

It’s important to remember that all of these factors are important and they all work together to determine the loan amount your borrower will be offered. It’s important to emphasize your borrower’s strengths and to account for any weaknesses in the above areas. Be sure to do your research and discuss these topics thoroughly with your borrowers so that you can work to get them the best loans possible for their needs.


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