Question: What does L.T.V. mean and what priority does it hold to my land loan?
Answer: The term L.T.V. stands for Loan To Value. This term is very important in determining if you can qualify for a land loan.
L.T.V. represents the amount of loan against the property versus the appraisal value or purchase price. It is represented in percentage form. For example, land is purchased for $1,000,000. The actual land loan amount is $700,000. To find the L.T.V., simply divide $700,000 by $1,000,000. This puts the L.T.V. at 70%.
However, some land purchases could be higher than what the appraisal will represent as a value. In that case, the L.T.V. will be determined on the appraisal value. For example, land is purchased at $500,000. The appraisal valued the land at $450,000. A down payment of $100,000 was put down leaving a $350,000 land loan. The L.T.V. is then determined by dividing the $350,000 by the $450,000 appraisal value instead of the purchase price of $500,000. This L.T.V. is then at 77%
A standard L.T.V. accepted by most land loan lenders is between 60% to 80% for land loans. This is extremely important to land loan lenders. This provides the lender with a guarantee of value to the money being loaned for that land. There are definitely other very important factors other than L.T.V. that determine qualification for a land loan, but knowing and understanding L.T.V. will make your land loan process much easier.
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