Simple facts: how to calculate a HELOC LTV, and more.
The #1 consideration when you start looking for a HELOC is, by a landslide, the loan-to-value.
LTV should be your priority for one simple reason: the more money you can get, the more you can do with real estate investing.
Depending on the property type, you’ll find that your bank or credit union will give you an LTV of somewhere between 70 and 90% in this market. In other markets, they’ve gone up to 100% loan-to-value.
Example of How To Calculate LTV on a HELOC
Let’s say you own a property worth $400,000. You found a credit union that will give you a 70% LTV on a HELOC to buy an investment property.
Here’s the simple calculation:
$400,000 × .70 = $280,000
So, they’ll allow $280,000 in a HELOC on that property.
If they offered an 80% LTV on the same home, then you’d get a HELOC with $320,000. At 90% LTV, you’d get $360k.
But What Is CLTV?
However, HELOC LTVs are a bit different than typical loans – after all, there’s already a first lien or mortgage on the property.
In this case, they look at a combined loan-to-value (CLTV) instead.
As an example, let’s say that property worth $400,000 has a mortgage that’s $270,000.
So here’s what the credit union will do for a CLTV:
- They know their 70% LTV would give you $280k.
- But since you still owe $270k, they’ll subtract that amount from your available LTV.
- Therefore, you’ll end up with $10,000 for a HELOC.
Maximizing Your LTV
This is why LTV is so important for a HELOC. The higher the LTV, the more available funding you’ll have to put anywhere in your real estate deals.
In our previous example, the 70% LTV only gave you $10k in your HELOC. The same property with an 80% LTV would get $50k. And 90% would leave you with $90,000 to use on a HELOC – even with the mortgage still on the home.
It’s essential to make sure you’re working with an institution that will give you the maximum loan-to-value to get more flexibility in funds.
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