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How Lenders Use the Combined Loan to Value Ratio in Real Estate Investing

The combined loan-to-value (CLTV) ratio is an important factor that lenders consider when evaluating a mortgage or other loan secured by real estate. The CLTV ratio is calculated by adding together the outstanding balances of all the loans secured by the property and dividing that total by the value of the property.


A high CLTV ratio indicates that the borrower has a large amount of debt relative to the value of the property, which may make the loan riskier for the lender. Lenders may be more hesitant to approve loans with high CLTV ratios, as they may be concerned about the borrower's ability to make the required payments.


On the other hand, a low CLTV ratio indicates that the borrower has a smaller amount of debt relative to the value of the property and may be less risky for the lender. Lenders may be more likely to approve loans with low CLTV ratios, as they may view these borrowers as having a lower risk of default.


In addition to the CLTV ratio, lenders may consider other factors when evaluating a loan application, such as the borrower's credit score, income, and debt-to-income ratio. By considering these and other factors, lenders can make more informed decisions about whether to approve a loan and at what terms.


For real estate investors, it's important to understand how lenders use the CLTV ratio when evaluating loan applications. By ensuring that the CLTV ratio of a potential investment property is within an acceptable range, investors can increase their chances of obtaining financing and successfully completing their investment.


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