LTV: Loan to Value in Relation to HUD 223f Loans
Loan to Value Ratios and HUD 223(f) Financing
When lenders are deciding whether to approve a loan, one of the most important factors they look at is LTV, or loan to value ratio. The higher a loan's LTV, the riskier it is for the lender. High LTV loans are especially risky because there little equity in the property that can be recovered if the borrower defaults. However, developers and investors like high LTV loans, since they can purchase a property with less money down, freeing up their valuable cash for other investment opportunities.
How to Calculate a Property's Loan to Value Ratio
In order to calculate the LTV of a property you're considering purchasing, you can use the formula:
Loan Amount/Appraised Value of the Property = LTV Ratio
For example, if an investor wanted to purchase a property worth $2 million, and was attempting to get a loan worth $1.6 million, the LTV for that loan would be:
$1.6 million/$2 million = 80% LTV
Loan to Value Ratio Limits for HUD 223(F) loans
The specific LTV ratio limits for various kinds of HUD 223(f) loans can be found below:
Market Rate Properties: 85% LTV or the amount of debt that can be serviced by 83.3% of net operating income
Affordable Housing Properties: 87% LTV or the amount of debt that can be serviced by 87% of net operating income
Rental Assistance Properties: 90% LTV or the amount of debt that can be serviced by 90% of net operating income
Refinancing: 80% LTV or 100% of refinancing cost (whichever is greater)