Multifamily and Commercial Real Estate Loan Ratios: A Broker’s Guide

When it comes to structuring commercial real estate financing, understanding key loan ratios is essential for securing the best deals for your clients. As a residential mortgage broker, commercial mortgage broker, private lender, or referral partner, you play a crucial role in guiding borrowers through the lending process and ensuring their deals meet lender criteria.

At RCN Capital, we know how important it is for our third-party originators and wholesale lending partners to have a firm grasp of financial metrics like commercial real estate loan to value, loan-to-cost (LTC), and other leverage factors that impact loan approvals. These ratios directly influence loan terms, risk assessments, and overall financing decisions, which is why lenders rely on them when underwriting deals.

Let’s break down LTC and LTV—what they mean, how they work, and why they matter for brokers like you.

Loan-to-Cost Ratio (LTC): What Brokers Need to Know

LTC is one of the most critical factors in determining the amount of financing a lender will provide for a commercial real estate project. It is calculated using the following formula:

LTC = Loan Amount / Total Cost

For brokers, LTC is a key metric when working with developers and investors seeking financing for ground-up construction or major renovations. The lower the LTC, the lower the leverage and risk for the lender, which may result in more favorable loan terms for your client.

Why LTC Matters to Brokers

• Helps set expectations for borrowers on the amount of equity they need to bring to the table.
• Affects the loan terms and interest rates a lender is willing to offer.
• Higher LTC means higher risk, which could lead to higher rates or additional lender requirements.
• Typical LTC values range from 50% to 75%, depending on the project type and market conditions.

For example, if a developer is working on a $1,000,000 construction project and a lender provides $750,000 in financing, the LTC would be 75%. Brokers need to ensure their clients understand these limits before structuring their deals.

Loan-to-Value Ratio (LTV): What Brokers Need to Know

While LTC focuses on project costs, commercial mortgage LTV assesses the ratio between the loan amount and the property’s market value. It’s calculated as:

LTV = Loan Amount / Total Value

Unlike LTC, which is based on development costs, LTV is based on the appraised value of a completed property. This is a crucial metric when your clients are seeking:

• Permanent financing for a stabilized commercial property.
• Refinancing options after construction is completed.
• Cash-out refinances for multifamily and mixed-use properties.

Why LTV Matters to Brokers

• Affects how much financing a client can secure based on property valuation.
• Impacts the interest rate and loan terms offered by lenders.
• Commercial property LTV is typically between 60% and 80%, depending on the asset type and borrower profile.

For example, if a borrower’s commercial property is appraised at $2,000,000 and they secure a $1,500,000 loan, their LTV would be 75%. Brokers should ensure their clients understand this distinction, especially when transitioning from construction to permanent financing.

Why Loan Ratios Matter for Brokers

As a third-party originator or wholesale lending partner, understanding these key ratios is critical for matching your clients with the right loan programs. Here’s why:

• Stronger Applications: Knowing LTV and LTC in advance helps structure loan requests properly, leading to smoother approvals.
• Competitive Advantage: Brokers who can clearly explain loan metrics to their clients position themselves as trusted advisors, increasing referrals and repeat business.
• Better Deal Structuring: Understanding lender risk tolerance allows brokers to position their clients’ applications more effectively, reducing pushback and delays.

How Brokers Can Leverage Loan Ratios to Win More Deals

Brokers who proactively educate their clients on mortgage LTV and LTC will set themselves apart in a competitive market. Here are a few key ways to use these ratios to your advantage:

1. Position Clients for Success with Realistic Expectations

• Many borrowers overestimate how much financing they can secure.
• By explaining how LTV and LTC impact loan approvals, brokers can set realistic expectations upfront.

2. Help Clients Improve Their Loan Terms

• Borrowers with lower LTC and LTV ratios often qualify for better rates and terms.
• Advising clients to reduce leverage where possible can improve financing options.

3. Identify the Right Lending Partners

• Different lenders have different risk tolerances when it comes to LTC and LTV ratios.
• Brokers who understand these differences can match their clients with the right lending programs more effectively.

Why Work with RCN Capital? A Broker-Focused Lending Partner

At RCN Capital, we know that wholesale lending partners and brokers are the backbone of the commercial lending industry. That’s why we offer:

• Broker Protection – Your clients stay your clients. We value our broker relationships and ensure that you remain the key point of contact for your deals.
• Quick Closings – Our efficient underwriting process allows us to close in as little as 10 business days, keeping your deals on track.
• Flexible Loan Programs – Whether you’re working with a residential mortgage broker structuring a multifamily loan or a commercial broker looking for a bridge loan, we have tailored financing options.
• Dedicated Account Managers – Get direct access to our lending team to ensure smooth communication and faster approvals.
• Consistent Commission Structure – Earn competitive commissions with repeat business opportunities for ongoing success.

By partnering with a broker-friendly lender like RCN Capital, you gain access to a lender that truly values and supports third-party originators. Whether you’re structuring a deal, educating your clients, or seeking a reliable lending partner, we’re here to help.

If you have any questions about multifamily and commercial real estate loans or want to discuss the best financing options for your clients, contact RCN Capital today!