When a prospective borrower contacts us, they may have questions regarding LTV and whether the project meets our lending guidelines.
We will go over the loan scenario, client’s experience level, financial picture and future property value and make a determination if it’s a fit with our programs. When a lender is determining the value of the property being purchased, we take the lesser of the purchase price or the appraised value. That is the number that we use as our loan amount on the application.
So, if you purchase a property for $200k and it appraises for $250k, we set our maximum LTV as 85% of the purchase price or $170k for our Rehab Cash Now loan program. This is standard for every borrower and we expect that our clients have some skin in the game to reduce our risk on the loan.
In order to get some assistance on the down payment, it’s possible to use another property you may own as collateral. Keep in mind that the structure needs to be a 1-4 family and is either owned free & clear or has a low lien balance.
Let’s say that you have a property that you’re looking to purchase & rehab in Daytona, Florida. You purchase the property at $150k and need about $75k to fix it up and cater to today’s buyer who wants an open concept floor plan including a new kitchen, baths, and hardwood flooring.
You have the estimated ARV to be $300k. The amount needed to renovate the property is $50k. RCN will lend up to 85% of the purchase price or $127,500 at the closing. We will then lend up to $50k for the renovations with our ARV program.
We will lend on the lesser amount of the 85% of purchase price + renovations OR up to 75% of the ARV. In this case, the purchase price + renovations was the lesser amount. This property will need to appraise at a minimum of $270k in order for this loan to work for us.
Good news, though. If the appraisal does come in for less, it doesn’t mean that we can’t do the loan. It just means that we’ll tweak the numbers and lessen the amount we’ll lend on the purchase price or the renovation funds.
While the appraisal does directly impact the amount of the loan, we can work with you on this. Many potential new borrowers ask how the ARV is truly determined. Well, you will have an appraisal completed as part of your loan request.
You or someone from your team will hopefully meet with the appraiser while they walk through the property and provide the scope of work and associated costs based on the degree of the finishes. When we receive the appraiser’s analysis, it will have two key-pieces of information: the current market value and the ARV based on the information the appraiser received.
We have an in-house appraiser that confirms the information on these reports every day looking for consistencies. The underwriter, loan officer, and our approval committee look at the value and loan amount to see if it meets the guidelines set forth on the LTV. We will base the final amount on this appraisal report.
In today’s mortgage environment, having options and increasing your leverage is important and RCN Capital is dedicated to providing real solutions tailored to your real estate investing needs.