Commercial Financing and the Commercial Finance Term "Standing Property"

A Standing Property is the Opposite of a To-Be-Built Project

I was training one of my loan officers today and he asked, "When do I use a loan-to-value ratio and when do I use a loan-to-cost ratio?"

The answer is that it depends on whether this is a construction loan or a loan on a standing property. A standing property is obviously one that has already been built.

The loan-to-cost ratio is only used for development projects. Perhaps the borrower is a developer who wants to build an office building or a residential subdivision (housing tract). In this case the commercial mortgage underwriter would want to look at the cost of the project and make sure that the developer is contributing at least 20% of the total cost of the project. Put another way, the underwriter would want to make sure that the loan-to-cost ratio does not exceed 80%.

In contrast, if you are financing a standing property, then the only applicable ratio is the loan-to-value ratio.

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