Could someone explain when the difference between LTV and ARV. I know loan-to-value and after-repair value, but what is the difference. I’m thinking LTV is what the value is today versus what the value will be a 3 months from now after repairs. If that is the case am I better off looking for lenders that loan on ARV over LTV. I found a lender that will do 100% LTV w/ 6 pts @ 15%. 6 month term. And may roll payments, however I’m thinking if LTV is what I think it is, it is going to be harder than $h!t to find a deal with those numbers. Am I wrong? (I kind of hope so)
Also, and elementary I am sure, but can someone post an equation to figure out how much this loan would cost me. I’m thinking X=price of property:
(X * .06) + X / 6 * .15 Nevermind what I’m thinking, I lost myself…please find me. it’s dark and I can her laughing
LTV is the amount of the loan compared to the value of the home, the value of which is typically determined by an official appraisal.
ARV is what the house is worth after the rehab is done and usually you can refinance at 75-80% LTV of what this value is.
Hope this helps.
Just to see if I got this and I’m trying to keep the numbers for simplicity’s sake(#'s example only)
Current value of property (after appraisal)- 50,000
70% mark- 35,000
rehab costs- -15,000
20,000
pts(6) - - 3,000
17,000
closing costs 3,000
14,000
I’m not sure what else to think of here, but to be below at or below the 70% on a 50k property to be 100% funded I would need to be able to pick it up for about 12k to be on the safe side. right?
and then say ARV is $85,000, and I sell for $68000 to pass on a good deal to the end buyer. I should realistically still be able to make 15-20k on that deal, correct? What am I missing here. ( I didn’t list it but I loosely estimated closing costs and advertising and what not) I’m more trying to get a better handle on how to understand how the numbers work.
Am I even close here or should I try my hand at frying doughnuts instead?
In a rehab situation, if you’re getting the money from a HML, which it sounds like you are based on the general numbers you’re putting out there, they will lend based on the ARV, or the value of the property after all the work is done to it.
70% Loan-to-Value of the After-Repaired-Value seems to be the magic number, so in the example you showed, if the ARV is a strong $85K (be realistic with your ARV, so you have alittle wiggle room), then your total loan that you could get, all costs included in the loan if thats your goal, would be $85K*70%, or $59500. Remember, $59500 would have to included points, closing costs, rehab $, plus the actual costs of the property. Most HML lenders are going to want you to put something in, maybe 5% down as cash, just to have some skin in the game. Hope this helps.
Thanks Jake it does. So it sounds like I have the gist of it. The HML I talked to today used LTV. Do they get used interchangebly(sp?)? Or should I just assume he did mean ARV? Nevermind I answered my own question. DON’T ASSUME. ASK.
Just to clarify jay, they really aren’t interchangeable terms as they are really different concepts. Again, just think of ARV as the REAL value of the property if it was in fully rehabbed, restored condition, not the current asking price of a rundown potentially crappy dump of a house. If the house is in generally good condition already, the current value and the ARV are probably going to be fairly close to the same thing.
LTV is the other concept. Its the numerical calculation of the amount the lender is giving you in relation to the value of the property. Its based on the value of the property, so make sure you clarify with the lender which value they are relating to-the asking price, the appraisal, the ARV, or whatever.
Example: (totally hypothetical)
- Lender bases 70% max LTV on asking price. Asking price=$100K, so max they would lend would be $70K
- Lender bases 70% max LTV on ARV. Asking price=$100K, ARV is $200K, so max they would lend would be $140K
Make sense?
Nooow, I get it. Wow, talk about overcomplicating things for one’s self. Thank you. Makes perfect sense now. I was starting to wonder how the hell anyone could make any money rehabbing with an HML loan. But, yes, now I get it.