The maximum loan to value ratio for commercial real estate loans varies by property (type and tenancy), underwriting factors (such as DSCR, debt yield, loan terms, market, etc), sponsorship and recourse. For example, if a property is valued at $1 million and a lender restricts its offer to a 70% LTV, you will be unable to get a loan larger than $700,000.

When a lender is determining the amount it is willing to lend on an apartment building or other piece of commercial real estate, there are many factors that come into play such as property type, property class, location, sponsorship, DSCR (debt service coverage ratio), and more. However, one of the primary components used by commercial real estate underwriters to determine a loan amount is leverage. Leverage is summed up and determined based on the Loan To Cost Ratio (LTC) and the Loan To Value (LTV).

When looking at a commercial property acquisition or refinance, a lender will typically limit the financing options on offer by a loan-to-value or loan-to-cost ratio. Factors that influence the loan to value ratio for commercial real estate loans include the property type, property class, location, sponsorship, and DSCR. The loan to value ratio is easily calculated by dividing the loan amount by the property value.

The loan-to-value ratio (LTV) affects the interest rate of a commercial real estate loan because it is one of the factors that lenders consider when determining the risk of the loan. The higher the LTV, the higher the risk to the lender, and the higher the interest rate they will charge. Generally, lenders will offer lower interest rates for loans with lower LTVs, as they are seen as less risky. For example, a loan with an LTV of 70% may have a lower interest rate than a loan with an LTV of 80%.

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The difference between a loan to value ratio (LTV) and a loan to cost ratio (LTC) is that LTV is used to assess acquisitions and refinance loans, while LTC is used to assess construction loans. LTV is calculated by dividing the loan amount by the value of the property, while LTC is calculated by dividing the loan amount by the cost of the loan. For example, if a borrower is buying a property for $1 million, and the property is worth $2 million, and the loan requested is $800,000, then the LTV ratio is 40% and the LTC ratio is 80%.

Sources:

• www.hud232.loan/hud-232-glossary/loan-to-cost
• apartment.loans/posts/what-is-loan-to-cost-ltc

The loan to value ratio affects the amount of money a borrower can borrow in two ways. First, a lower LTV ratio is seen as lower risk and may result in a lower interest rate or a larger loan amount. Second, a higher LTV ratio is seen as higher risk and may result in a higher interest rate or a smaller loan amount.

For example, if an apartment building has an appraised value of $1 million and the lender is providing a loan for $700,000, the LTV ratio is 70%. This means that the lender is loaning 70% of the value of the property. The maximum LTV ratio will depend on the lender and the type of property. Generally, lenders will offer lower ratios for higher-risk properties and higher ratios for lower-risk properties.

Having a low loan to value ratio for a commercial real estate loan can result in more competitive loan terms and rates. For example, if a building is worth $10 million and the existing loan is $6 million, that means the LTV is 60%. This would be a lower risk and more competitively priced loan than perhaps an $8 million loan (80% LTV) on the same property.

Leverage constraints vary by property (type and tenancy), underwriting factors (such as DSCR, debt yield, loan terms, market, etc), sponsorship and recourse.