Combined Loan-to-Value (CLTV)

Combined loan-to-value, also known as CLTV, is a metric lenders use to figure out your risk level as a borrower. Borrowers with a high CLTV may have a harder time getting approved for a loan, while borrowers with a low CLTV can usually get approved as long as they meet other lending criteria.

The combined loan-to-value of a property is equal to the combined value of all loans secured by the property divided by the market value of the property. In addition to your primary mortgage, this also includes second mortgages and home equity lines of credit. Combined loan-to-value is typically expressed as a percentage, and that percentage is one of the main things certain lenders look at.

Combined loan-to-value is an essential metric when it comes to hard money loans. When you apply for a hard money loan, lenders look at your LTV or CLTV, as well as the value of the property you’re looking to purchase. If you exceed a certain LTV or CLTV threshold, you’re going to have a hard time getting approved for a loan.

As an investor, it’s important to understand how taking out additional loans can impact your combined loan-to-value and your ability to secure a loan.

It’s important for investors to understand how CLTV works and how lenders use it to assess the risk of each individual. In this section, we’ll take a more detailed look at CLTV and show you an example calculation so you can see how it works in the real world.

Lenders look at your combined loan-to-value to see how much debt you’re in with a particular property. If the combined value of loans secured by your property are equal to 90% of the market value of that property, lenders will be hesitant to let you use that property as collateral to secure a hard money loan.

On the other hand, lenders look at a very low CLTV as a positive sign. If the combined value of your loans is 20% of the property’s market value, that property is a valuable piece of collateral.

Your CLTV isn’t the only metric hard money lenders consider when you apply for a loan. While hard money lenders typically have more flexible income and credit score requirements, you may be required to meet a certain credit score threshold to secure a loan.

Calculating combined loan-to-value is simple as long as you know how much you’ve borrowed against a property. Let’s take a look at an example calculation to help you understand how CLTV is calculated.

In this example, we’ll look at a home with a $500,000 market value. The homeowner has a mortgage of $250,000, and took out a home equity loan of $75,000. The total value of the primary mortgage and home equity loan is $325,000, which you’d divide by the market value of the property:

• $325,000 / $500,000 = 0.65, or a combined loan-to-value of 65%

Understanding how combined loan-to-value is calculated and how it can impact your ability to secure a loan is important. In this section, we’ll look at some real-world examples of how combined loan-to-value is calculated and how that can ultimately impact your hard money loan.

Let’s say you’re a first-time homeowner looking to start your journey as a real estate investor. You took out a mortgage to purchase your home for $150,000 two decades ago, and that same home now has a market value of $400,000. You haven’t taken out any second mortgages or home equity loans, so your mortgage is the only number you have to consider when calculating your CLTV:

• $150,000 / $400,000 = 0.375, or a CLTV ot 37.5%

This is a relatively low CLTV, which means you’ll probably have an easy time getting approved for a hard money loan. At Source Capital, we offer hard money loans up to 65% LTV and 50% CLTV in second position.

In this example, we’ll look at a recent homebuyer who took out a home equity loan. You might have taken out a mortgage of $300,000 to purchase your home, which now has a market value of $400,000. In addition to your primary mortgage, you also took out a $50,000 home equity loan. These numbers need to be combined when calculating your CLTV:

• $300,000 + $50,000 / $400,000 = 0.875, or a CLTV of 87.5%

Most lenders will look at an 87.5% CLTV and immediately deny your hard money loan application, so it’s important to maintain a relatively low CLTV. 

Your CLTV ratio plays a key role in your ability to get a loan, so there are several benefits and considerations when it comes to combined loan-to-value.

A low CLTV makes it easier to secure a hard money loan, so you can get started as an investor as quickly as possible. Maintaining a low CLTV also results in less debt, so the benefits are twofold.

A high CLTV can make it nearly impossible to secure a hard money loan, which is why it’s important to be smart about the loans you apply for.