What is Combined Loan-To-Value CLTV for a Hard Money Second Mortgage?

If you're searching online for the right lender for a hard money second mortgage, it's important to know your combined loan-to-value (CLTV). CLTV is a critical factor in hard money second mortgages. It determines how much the junior lien holder will lend against your property and how much leverage you can take on. 

This brief article will discuss what to know about CLTV before you apply for a hard money second mortgage, including: 

• What is combined loan-to-value (CLTV)?
• What is the maximum CLTV for a hard money second mortgage?
• What factors can reduce the CLTV ratio? 

What is Combined Loan-to-Value (CLTV)? 

CLTV is the ratio of all mortgages on a property to the value of the property, commonly seen in situations where there are two or three mortgages.  

Example: 

A real estate investor owns a $1 million property with a $400,000 first mortgage, for a 40% LTV. If the owner wants to take out a hard money second mortgage for $250,000, the combined loan-to-value of the two mortgages would be 65% CLTV.  

• $400,000 1st mortgage
• $250,000 2nd mortgage
• $650,000 total (65% CLTV) against a $1,000,000 property value 

Simply put, CLTV is the ratio of combined mortgage value to property value.

What is the Maximum CLTV for a Hard Money Second Mortgage? 

Most private money and hard money lenders stick to a maximum of 65-70% CLTV. This is where you should set your expectations for maximum leverage on a hard money second mortgage. 

In very rare instances, lenders go to 75% CLTV, but only for a highly experienced repeat borrower with second mortgage funds extending just a few months. FCTD works with some long-time borrowers who can secure 75% CLTV on a second mortgage from us. In these cases, we’re usually doing the purchase loan that's financing their next project, and will be paid off within a few months on a finished project that's in escrow, closing within 45-60 days.  

What Factors Can Reduce the CLTV Ratio? 

The most common factor I’m seeing lately (in 2023) are private lenders reducing second mortgage leverage down to 60% CLTV on Florida properties facing increased insurance costs and rapid increases in value. Hard money lenders have long memories and probably undiagnosed cases of post-traumatic stress disorder from 2008. When they see insurance price spikes and dramatic property value increases in a place like Florida, with lots of second homes and vacation rentals, they tend to cut the leverage on their loans. It’s the right thing to do.  

Another factor that would reduce CLTV is if the property is located in a judicial foreclosure state. Unlike in a non-judicial state, a judicial foreclosure must go through the court system, which can drag on for several years before a lender receives funds on a foreclosed property. States like Florida, Hawaii, Illinois, New Jersey, New York, Pennsylvania and South Carolina are primarily judicial foreclosure states. Some private lenders will reduce the CLTV on a hard money second mortgage in a judicial foreclosure state due to the added risk.

I work with a trust deed investor embroiled in the foreclosure process for nine years for a loan made in New Jersey. During that time, the lender has paid legal fees, force-placed insurance, and approximately $14,000 per year in property taxes to ensure the county doesn’t foreclose. Safe to say, this lender won't lend in New Jersey ever again. 

Conclusion

It's good to know the combined loan-to-value (CLTV) you can expect for a hard money second mortgage before you apply for financing. Private money and hard money lenders are usually limited to 65-70% CLTV for most borrowers. For borrowers with an extensive track record, CLTV can sometimes reach 75%. For borrowers in Florida or another judicial foreclosure state, set your expectations to 60% CLTV.