Loan-to-value ratio (or LTV) is an assessment of risk that lenders use to determine the viability of a loan. Loans with higher LTVs are considered riskier, and therefore often have higher interest rates. Lenders believe that borrowers who have loans with higher LTVs have a greater likelihood of defaulting on their mortgages because of the lack of equity within the property. However, a higher LTV allowance means that investors and developers can get a sizable loan with less cash down.
The Benefits of High LTV Multifamily Loans
Loan-to-value ratio (or LTV) is an assessment of risk that lenders use to determine the viability of a loan. Loans with higher LTVs are considered riskier, and therefore often have higher interest rates. Lenders believe that borrowers who have loans with higher LTVs have a greater likelihood of defaulting on their mortgages due to of the lack of equity in the property. However, a higher LTV allowance means that investors and developers can get a sizable loan with less cash down.
How LTV is Calculated
LTV can be calculated by using the formula below:
LTV Ratio = Loan Amount/Appraised Value of the Property
For example, if a developer wanted to get a loan for $3 million, and the property is worth $4 million, the LTV ratio would be 75%. However, LTV isn't the only factor that lenders look into when considering whether to approve a HUD multifamily construction loan.
Lenders Also Look into the Loan-to-Cost Ratio (LTC) of a Property
Like LTV, loan-to-cost ratio (LTC) is another financial metric that can help lenders determine the viability of development project. LTC can be calculated like this:
LTC Ratio = Loan Amount / Total Cost
If a developer wished to purchase a property for $3 million and the property is worth $4 million, and is attempting to get a loan for $2 million, the LTC would be:
$2 million/$3 million = 66.6% LTC
HUD 221(d)(4) Loans Allow Higher LTV Than Most Multifamily Loans
Unlike some other types of loans, HUD 221(d)(4) financing allows unusually high LTV ratios. That means:
Market rate properties can qualify with 87% LTV
Affordable properties and properties with 90% of more low-income units can qualify with 90% LTV
It may also be helpful to remember that HUD multifamily properties with a large amount of affordable/low-income units (those set a specific percentage of a location's area median income) are also eligible for LIHTCs, or low-income housing tax credits.
To learn more about high LTV allowance HUD 221(d)(4) loans, get a financing quote and a HUD loan expert will get in touch.
Related Questions
What is the maximum loan-to-value ratio for HUD 221(d)(4) loans?
The maximum loan-to-value ratio for HUD 221(d)(4) loans is 87% for market-rate properties, 90% for affordable properties, and 90% for properties with 90% or more low-income units (HUD ML 2025-03).
Source: apartment.loans/hud-221-d-4-loans and hud221d4.loan/hud-multifamily-construction-loans
What is the minimum loan-to-value ratio for HUD 221(d)(4) loans?
The minimum loan-to-value ratio for HUD 221(d)(4) loans is 87% for market-rate properties, 90% for affordable properties, and 90% for properties with 90% or more low-income units (HUD ML 2025-03).
Source: apartment.loans/hud-221-d-4-loans and hud221d4.loan/hud-multifamily-construction-loans
How does the loan-to-value ratio affect the interest rate of a HUD 221(d)(4) loan?
The loan-to-value ratio (LTV) does not directly affect the interest rate of a HUD 221(d)(4) loan. However, the LTV does affect the amount of loan proceeds that can be borrowed, which in turn affects the debt service coverage ratio (DSCR). The DSCR is a measure of a borrower's ability to repay a loan, and lenders use it to determine the interest rate of a loan. The higher the DSCR, the lower the interest rate.
According to HUD 221(d)(4) Loans, the loan amount will be the maximum proceeds subject to the lesser of:
- 87% LTC (or replacement cost), 87% of net operating income, or 1.15 DSCR for market rate properties
- 90% LTC (or replacement cost), 90% of net operating income, or 1.11 DSCR for affordable housing properties
- 90% LTC (or replacement cost), 90% of net operating income, or 1.11 DSCR for rental assistance properties (HUD ML 2025-03)
For more information on HUD 221(d)(4) loans, please visit Apartment Loans.
What is the difference between a loan-to-value ratio and a loan-to-cost ratio?
The Loan-to-Value Ratio (LTV) is a metric used to compare the amount of a loan to the value of the collateral used to secure the loan. It is primarily used as a risk mitigation metric in standard asset purchase and refinance transactions.
The Loan-to-Cost Ratio (LTC) is a metric comparing the amount of a project’s financing to its construction costs. It is used for ground-up developments or rehabilitation projects, and lenders typically use the value of the finished or stabilized property when assessing the LTC.
How does the loan-to-value ratio affect the amount of equity required for a HUD 221(d)(4) loan?
The loan-to-value ratio affects the amount of equity required for a HUD 221(d)(4) loan by determining the maximum loan amount that can be approved. According to Apartment Loans, the loan amount will be the maximum proceeds subject to the lesser of:
- 87% LTC (or replacement cost), 87% of net operating income, or 1.15 DSCR for market rate properties
- 90% LTC (or replacement cost), 90% of net operating income, or 1.11 DSCR for affordable housing properties
- 90% LTC (or replacement cost), 90% of net operating income, or 1.11 DSCR for rental assistance properties (HUD ML 2025-03)
According to HUD 221(d)(4) Loans, HUD 221(d)(4) financing allows unusually high LTV ratios. This means that market rate properties can qualify with 87% LTV, affordable properties can qualify with 90% LTV, and properties with 90% or more low-income units can qualify with 90% LTV (HUD ML 2025-03).
What are the benefits of a low loan-to-value ratio for HUD 221(d)(4) loans?
The benefits of a low loan-to-value ratio for HUD 221(d)(4) loans are that they offer higher leverage than most other types of loans. For example, HUD 221(d)(4) financing offers up to 90% LTV for subsidized and affordable properties, and up to 87% for market-rate properties (HUD ML 2025-03). This is higher than CMBS loans, which offer a maximum of 80% LTV, and life company loans, which offer 75%, but more often only provide up to 65%. Freddie Mac and Fannie Mae typically only offer 70% to 75% for fully amortizing, fixed-rate loans. Additionally, HUD multifamily properties with a large amount of affordable/low-income units are eligible for LIHTCs, or low-income housing tax credits. Source and Source