Question

You are an investor with $150,000 looking to do a private loan. There is a deal you can participate in. There is a gentleman with a house worth $950,000 and an outstanding mortgage amount of $550,000.

A) What is the maximum LTV (loan-to-value) you should go up to? And how much is that in dollar amounts in total borrowings against his house?
b) Why would you never loan up to 100% LTV?
c) This gentleman is looking to borrow $100,000. However, you are worried about him defaulting on his monthly payments and you don’t want to go through the hassle of chasing him down every month. What do you do?
d) The terms of the loan are for 1 year at 13.5% interest, a 2.5% lenders fee, and a 2.5% brokers fee. How much money from the $100,000 loaned does he receive?

Answer 1

A) LOAN TO VALUE =(Mortagage value/Property price)*100

550000/950000=0.57*100=57%

Hence 57% of total value of the house can be funded

B) 100% Ltv put Lenders at risk Hence it is not preferable

Lenders don’t really want your property—they just want to get their money back quickly. If they only lend up to 80% (or less) of the property’s value, they can sell the property at less than the top dollar to recover their funds. That’s easier than holding out for a great offer.

Likewise, whatever you bought might have lost value since you bought it, so lending 100% or more puts lenders at risk.

c) As Lender sensing the risk of defaulting on the borrower in future it is better to go for legal agrement with the borrower like if borrowe doesnt repay the money he owes a stake in the mortagaged property

D)Loan amount = 1,00,000

Deductions = 2.5% lender fee+2.5%broker fee

i.e total 5%

100000*5/100=5000

total Net amount to be received is

Loan Amount minus Total Deductions

100000-5000= 95000$