Loan to value definition in real estate
Loan to value in real estate is what lenders (usually banks) typically use to assess the risk involved before qualifying a mortgagor/borrower for a mortgage. A simple way to describe this is if a borrower borrows $260,000 to purchase a house worth $300,000, the LTV ratio is $260,000/$300,000 or 87% Loan to value (LTV).
The higher the loan to value the more the risk to the lender, the lower the lower the loan to value the less the risk there is for the lender. That being said the higher the loan to value the more money a lender can potentially make.
Also a lender can potential make more money if the lender has a low credit score. The downside to this is that likely hood of a lender with bad credit defaulting will most definitely increase which could potentially increase the rate of return for the lender.
Private Lenders & Private Lending
Personally I find that it’s a good idea to view a property from the view point of a private lender, the reason I say this is because unlike a bank or financial institution a private lender will base his or her decision to issue a loan on the actual property. A private lender ignores a person’s credit history and focuses their attention on the property itself this way if the borrower/mortgagor defaults the private lender can simply sell the property or rent it out the property for a profit.
Loan To Value Final thoughts
If you’re the lender or an investor I would highly recommend that you look into the private mortgage lending market this market has made quite a few people quite wealthy. The key thing to understand in this business is that you have to be patient and also it’s important that you follow all the necessary steps and find the right partners to increase the chances of success. For those of you looking to borrow try to remember that the blessing that we have in the developed world is our credit so protect it with your life. I know many people who are living or have lived there entire lives just on credit and used insurance to pay off all their debts.
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