What is the formula used to determine the a LTV on a Mult-residential 6 Unit property?

Bank requirements have changed so much I cannot keep up. I rember there was a basic formula using cost, income and expenses which I have long forgotton.
In Buying Property - Asked by George K. - Mar 6, 2013
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Rob B.
Chandler, AZ

I am not a lender's representative, so it may be best to actually contact a qualified lender or lender's representative in your area.
However, the first step is to determine value, which often is the price that is being paid, (if the price is not discounted by the lender). The lender will either do an appraisal, or apply comparable sales data, to the subject property. The financial institution will certainly consider the income generated; and the expenses used to maintain the property (NOI) to find a debt service coverage ratio as well. This ratio is found by dividing Net Operating Income from the property, by Total Debt Required in financing.
However, to stick with the question you asked the second step is to determine what a specific lender is going to require with regard to LTV (Loan to Value).
For simplicity, if the value of the property is determined to be $600,000 and your loan is $450,000, your loan to value is 450,000/600,000 = 75% LTV.
Thus, the amount of the loan divided by the established value = LTV.
There are many LTV calculators available by searching on the Net for "Loan to Value Ratio".
Onward and Upward....
Rob Baird
CA DRE #544165 (one of the oldest active licenses in the State)
AZ DRE #BR 641305000
951 515-5855

Mar 12, 2013
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sean g.
Manhattan Beach, CA

Properties with more than four units are considered commercial properties and come with their own funding and underwriting rules.
Generally speaking, the property's ability to pay for itself is more important than your personal financial position. Here are a few variables you will be asked to provide:
Personal financial statement.
The property's current rent structure.
Two years of operating income statements.
A year-to-date operating income statement.
Month-by-month income breakdown of the past 12 months.

Mar 26, 2013
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Joe L.
Dallas, TX

Lenders often use a metric called the "debt service ratio". Currently it usually runs from 1.25 up to 2.0. Take the property's annual cash-on-cash net operating income (NOI=income-expenses) and divide it by the total annual note payment. Lenders want you to have $1.25-$2.00 in NOI for every $1 of note payment. Bigger DSRs mean you have more cushion to make the payments.
This doesn't "determine" the LTV, but if the resulting note at whatever LTV doesn't have a high enough DSR, they may offer you a smaller LTV to bring the DSR into their required range.

Jun 5, 2014
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