LTV, or loan-to-value ratio, is one of the most important metrics on a loan. It represents the amount of the loan compared to the appraised value of the underlying asset; which is usually the property being invested in. As previously discussed, it is also a measure of risk for the lender. The higher the LTV, the more riskier the loan is for the lender.
What is a 100% LTV loan?
A 100% LTV loan is a loan that covers the complete cost of the property being invested in. It is less technically known as 100% financing. Traditionally, when purchasing a property you would put down somewhere around 10-30% of the purchase price and use a loan, such as a hard money loan, to finance the rest. If you were to put down 20%, the resulting loan would be an 80% LTV loan; because the loan is covering 80% of the value of the property.
With a 100% LTV loan you put down 0% and finance the entirety of the investment.
Why use a 100% LTV loan?
Real estate investing is very capital-intensive, meaning that usually a large amount of money is required, especially if you're the type of investor who is aiming to work on multiple deals and projects at the same time. If each property requires 10-30% down, you can easily be limited to adding additional investments until the you can sell what you currently own. By using 100% LTV loans, there is no capital requirement on your end, and as long as you can continue to secure financing, you can continue to acquire new investments and grow your business.
What are the drawbacks to 100% LTV loans?
It is most often the case that 100% LTV loans are very expensive. You can expect the interest rates and points to be incredibly high. This is a reflection of the high risk that the lenders are taking with this type of financing. It has to be lucrative enough for the lenders to want assume that amount of risk.
Getting approved for a 100% LTV loan can be difficult as well. Don't be surprised if the credit score, personal assets and past investment requirements are very strict. It's possible that the lender will not be willing to offer 100% LTV until you have already completed successful deals with them in the past and a trustworthy relationship has been formed.
How to find lenders that offer 100% LTV loans?
Our platform was built to solve problems like this. Rather than you having to search, we do it for you after you input your loan requirements. But, if you are curious which lenders are out there, we can help with that too. At the time of writing this, our database of hard money lenders has around 300 lenders that offer 100% LTV loans.
Remember, just because a lender offers 100% LTV loans does not mean that they will accept any deal that comes across the table. As mentioned before, the requirements to secure a loan like this are strict. To make things as easy as possible for you, after you enter your loan requirements, lenders willing to finance your investment will connect directly to you through our platform.