{"id":1275,"date":"2021-02-24T06:50:58","date_gmt":"2021-02-24T06:50:58","guid":{"rendered":"https:\/\/blog.calhardmoney.com\/?p=1275"},"modified":"2023-06-29T11:35:17","modified_gmt":"2023-06-29T11:35:17","slug":"the-difference-between-loan-to-cost-and-loan-to-value","status":"publish","type":"post","link":"https:\/\/www.calhardmoney.com\/blog\/the-difference-between-loan-to-cost-and-loan-to-value\/","title":{"rendered":"The Difference Between Loan-to-Cost and Loan-to-Value"},"content":{"rendered":"<p>When you apply for a hard money loan, it is important to understand some of the key terms and metrics utilized by <a href=\"https:\/\/www.calhardmoney.com\/borrowers\/hard-money-loans-near-me.php\"><strong>hard money lenders in Los Angeles<\/strong><\/a> &#8211; the difference between loan-to-cost and loan-to-value. Let&#8217;s explore.<\/p>\n<h2><strong>Loan-to-Cost<\/strong><\/h2>\n<p>Loan-to-cost is a metric in commercial real estate that measures the ratio between the total loan amount and total cost of the real estate project. The relevant cost for a project will typically be either construction expenses or the purchase price to secure the property. Here is an example of how loan-to-cost works \u2013 you are seeking a $7,000 hard money loan for a $10,000 construction project. The loan to cost for this $10,000 construction project with $7,000 in financing is approximately 70 percent ($7,000 divided by $10,000).<\/p>\n<h2><strong>Loan-to-Value <\/strong><\/h2>\n<p>Loan-to-value is a metric in commercial real estate that measures the ratio between the total loan amount and fair market value of the real estate project. For example, a loan to value for a property that is worth $200,000 and a loan of $150,000 has a loan-to-value of 75 percent (150,000 divided by 200,000).<\/p>\n<h2><strong>The Metric Used by Hard Money Lenders <\/strong><\/h2>\n<p><a href=\"https:\/\/www.calhardmoney.com\/\"><strong>Hard money lenders in Los Angeles<\/strong><\/a> and elsewhere in California use both loan-to-cost and loan-to-value to help assess risk. It is important to understand that the higher the percentage, the higher the risk to the lender.<\/p>\n<h2><strong>Understanding the Difference <\/strong><\/h2>\n<p>The key difference between loan-to-value and loan-to-cost comes into play if you are attempting to purchase a property at a significant discount.\u00a0 For example, let&#8217;s say Property A is purchased for $100,000, but it has a fair market value of $150,000.\u00a0 A loan for $90,000 for the purchase represents a 90 percent loan to cost, which many hard money lenders will avoid due to the significant risk. However, if that same deal is assessed using loan-to-value, the risk is 60 percent. As a result, a lender using a loan-to-value analysis will likely view the deal as a relatively safe investment opportunity.<\/p>\n<p>If you are applying for a hard money loan to help cover the cost of securing a fix-and-flip property, the distinction between loan-to-value and loan-to-cost is apparent.For example, on raw numbers alone, a lender using a loan-to-cost analysis will likely show a ratio well above 65 percent in virtually every hard money loan for a fix-and-flip project, which indicates a high risk that most hard money lenders would want to avoid. Hence, you should try to find a hard money lender who utilizes the loan-to-value assessment for a fix-and-flip project. Why? Because the risk ratio will generally be much lower when basing the numbers on loan-to-value.<\/p>\n<h2><strong>Interested in Working with a <em>Hard Money Lender in Los Angeles<\/em>? Contact PB Financial Group Today<\/strong><\/h2>\n<p>If you are looking to secure a hard money loan for a real estate venture, take action by contacting PB Financial Group today. PB Financial Group is a premier direct hard money, private money and bridge lender, who has been providing quick funding since 2006 and have funded over 2700 hard money\/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner. To schedule a consultation please contact PB Financial Group at <a href=\"tel:877003707\"><strong>877.700.3707<\/strong><\/a> or visit <a href=\"https:\/\/www.CalHardMoney.com\">www.CalHardMoney.com<\/a> for further information.<\/p>\n<p><strong>PB Financial NMLS #357614\/DRE #01522495<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When you apply for a hard money loan, it is important to understand some of the key terms and metrics utilized by hard money lenders in Los Angeles &#8211; the&#8230;<\/p>\n","protected":false},"author":2,"featured_media":1281,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[3,93],"tags":[33],"class_list":["post-1275","post","type-post","status-publish","format-standard","has-post-thumbnail","category-blog","category-hard-money-lenders","tag-hard-money-lenders-in-los-angeles"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>The Difference Between Loan-to-Cost and Loan-to-Value<\/title>\n<meta name=\"description\" content=\"Are you applying for a hard money loan. 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