Land value, LTV, and the cash available at closing

Identify which value is being used

The purchase price, an owner’s estimate, the current appraised value, and a projected completed value can differ. For land, current use and zoning matter alongside its physical condition. A valuation based on future improvements includes assumptions that a current valuation may not.

Ask which valuation the lender accepts for the proposed structure and whether an existing report can be used. The OCC’s commercial real estate guidance distinguishes current property value from prospective values after completion or stabilization; those concepts are useful when reading an appraisal.

Further reading: OCC: Commercial real estate lending and collateral valuation.

Use LTV to understand the relationship

Loan-to-value, or LTV, compares the loan amount with the accepted property value. A $1.2 million loan against a $2 million accepted value equals 60% LTV. That arithmetic explains the ratio; it does not establish the leverage available for your property.

An advertised maximum is not a guaranteed offer. The transaction, collateral, location, and proposed repayment plan still need review. Additional collateral also needs its own evaluation; adding another parcel does not automatically increase the approved amount.

Subtract what must be paid or held back

For a refinance, existing debt may need to be paid from the new loan. Closing expenses and any required reserves or holdbacks can reduce the money released for other uses. An acquisition also needs a complete accounting of the purchase price and your contribution.

Tell us which number you need

In your request, provide the gross loan amount, estimated collateral value, and existing debt separately. Use the notes to state the net amount you need for the project and explain its intended use.

If a payoff is only an estimate, say so. A current payoff statement can later clarify accrued interest, charges, and the date through which the figure is valid.