CRE 101 · deweyluong.realtor

Loan-to-Value and Amortization Explained: How LTV, the Amortization Schedule, and the Balloon Decide What a Georgia Commercial Buyer Can Actually Pay

Most commercial buyers shop for a price. The lender shops for three numbers first — LTV, amortization, and coverage — and those three quietly set the highest price the buyer can actually close. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

A buyer can negotiate a great price and still lose the deal in underwriting, because the purchase price is only one side of the closing table. The other side is the loan: how much of the price the lender will fund (loan-to-value), over how many years the payment is spread (amortization), and when the balance actually comes due (term and balloon). This page walks through each piece, how they interact with DSCR and debt yield, and a full worked example where asking for a bigger loan fails a coverage test — so the lender, not the buyer, sets the final loan size. The worked example uses made-up, rounded numbers to teach the mechanics. This page is general education, not financial or lending advice — loan terms are quoted case by case by the lender.

LTV: the equity check is written first

• The formula: LTV = loan amount ÷ value. The lender normally uses the appraised value or the purchase price, whichever is lower — a contract price above appraisal does not raise the loan; it raises the buyer's cash.
• Typical commercial ranges: bank loans on stabilized Georgia commercial property are often quoted in the 60–75% LTV band, lower for land, construction, and special-purpose buildings, higher for strong credit tenants and owner-occupants using programs like SBA 504. Treat any quoted range as a starting conversation, not a commitment.
• Equity is more than the down payment: at 65% LTV on $2,000,000 the equity is $700,000, and closing costs, lender fees, reserves, and immediate capital work sit on top of it. Cash-to-close, not the price gap alone, is the number to plan.
• LTV is a risk price, not a favor: a lower LTV cap is the lender saying the income, the tenant, the property type, or the borrower needs more skin in the deal.

Amortization and term: two different clocks

• Amortization sets the payment. The monthly payment is calculated as if the loan ran the full amortization schedule — 20, 25, or 30 years are common. Longer amortization = lower payment = higher coverage, and slower principal paydown.
• Term sets the deadline. A 5, 7, or 10-year term means the loan matures long before the amortization schedule finishes. The remaining balance — the balloon — is due at maturity, normally paid from a refinance or a sale.
• Early payments are mostly interest. On a 6.75% loan, the first payment is about 81% interest. Principal reduction accelerates later in the schedule — which a 5-year term never reaches.
• Rate, amortization, and term travel together. A quote is meaningless until all three are named.

Worked example. The numbers below are made up and rounded to teach the mechanics. This is not a real property or a loan quote.

• A stabilized Gwinnett retail property, purchase price $2,000,000, NOI $144,000 a year (see Cap Rate and NOI).
• The 65% loan: 65% × $2,000,000 = $1,300,000 loan; buyer equity $700,000. At an assumed 6.75% rate on a 25-year amortization, the payment is $8,982 a month, or $107,782 a year.
• The coverage check: DSCR = $144,000 ÷ $107,782 = 1.34x — above the 1.25x floor many lenders use. Debt yield = $144,000 ÷ $1,300,000 = 11.1%. The loan passes.
• The 75% ask: 75% × $2,000,000 = $1,500,000 loan; payment at the same rate and amortization is $10,364 a month, $124,364 a year. DSCR = $144,000 ÷ $124,364 = 1.16x — below the floor. The lender cuts the loan back toward the 65% answer. The buyer did not choose the LTV; the NOI did.
• The balloon: on the 65% loan with a 5-year term, after 60 payments totaling about $538,911, the balance is still about $1,181,257. Principal paid in five years: about $118,743. In the very first payment, $7,313 of the $8,982 was interest and only $1,669 was principal.
• The amortization lever: the same $1,300,000 at 6.75% costs $9,885 a month on a 20-year amortization and $8,432 a month on a 30-year schedule. Longer amortization rescues DSCR today and leaves a larger balloon tomorrow.

The lesson: underwrite the loan you can actually get — LTV after the coverage tests, the payment at the real amortization, and the balloon at the real term — before you fall in love with the price.

Georgia and Gwinnett specifics

• Community and regional banks carry much of this market: Gwinnett and Metro Atlanta commercial purchases are heavily financed by local and regional bank balance-sheet loans — exactly the 5-to-10-year term, 20-to-25-year amortization, balloon structure in the example.
• Appraisal discipline: the loan is sized off the appraised value, and the BOV vs appraisal gap is where deals re-trade.
• Owner-occupants have a second lane: a business buying its own building may qualify for SBA 504 or 7(a) structures with materially higher leverage. Compare that lane in the Lease vs Buy analysis.
• Refinance risk is local too: the balloon lands in whatever rate and value environment exists in year 5 or 7.

Four mistakes buyers make with LTV and amortization

• Planning cash off the asking LTV — the approved LTV after DSCR, debt yield, and appraisal is the only one that funds.
• Reading the payment, ignoring the balloon — know the balance due at maturity on day one.
• Stretching amortization to force a deal — a 30-year schedule that barely passes coverage leaves no cushion.
• Forgetting costs above the equity line — fees, reserves, and immediate repairs are cash too.

Cho người mua người Việt

Khi mua bất động sản thương mại ở Georgia, ngân hàng quyết định ba con số trước khi bạn quyết định giá: LTV (tỷ lệ vay trên giá trị), amortization (số năm dùng để tính khoản trả hàng tháng) và term (thời hạn thật của khoản vay). Mua $2.000.000 với LTV 65% nghĩa là vay $1.300.000 và bỏ $700.000 vốn. Với lãi suất giả định 6,75% và amortization 25 năm, khoản trả là $8.982 một tháng — đủ đạt DSCR 1,34x trên NOI $144.000. Nhưng nếu vay 75%, DSCR rơi xuống 1,16x và ngân hàng sẽ cắt khoản vay xuống.

Điểm dễ bị bất ngờ nhất là balloon: với term 5 năm, sau 60 kỳ trả tổng cộng khoảng $538.911, nợ gốc chỉ giảm khoảng $118.743 vì những kỳ đầu phần lớn là tiền lãi — còn khoảng $1.181.257 đến hạn cùng một lúc, phải tái tài trợ hoặc bán. Đây là thông tin giáo dục chung, không phải tư vấn tài chính.

Frequently asked questions

What is loan-to-value (LTV) in a commercial loan?

LTV is the loan amount divided by the property value (or purchase price, whichever the lender uses — often the lower of the two, based on the appraisal). On a $2,000,000 purchase, a 65% LTV loan is $1,300,000 and the buyer's equity is $700,000 before closing costs. LTV is the lender's first risk dial: the lower the LTV, the more of the buyer's own money absorbs a value drop before the lender is exposed. That is why stronger properties and borrowers are quoted higher LTVs and weaker ones are capped lower.

What is the difference between the loan term and the amortization schedule?

They are two different clocks. The amortization schedule is the period over which the payment is calculated as if the loan would be fully repaid — commonly 20, 25, or 30 years on commercial loans. The term is when the loan actually comes due — commonly 5, 7, or 10 years. When the term is shorter than the amortization, whatever balance remains at the end of the term is due all at once as a balloon payment, which the borrower normally pays by refinancing or selling. Most Georgia commercial bank loans are written this way.

How much of my loan will I still owe at the balloon?

More than most first-time buyers expect, because early payments are mostly interest. On this page's worked example — a $1,300,000 loan at 6.75% on a 25-year amortization — the first monthly payment of $8,982 is $7,313 of interest and only $1,669 of principal. After 60 payments totaling about $538,911, the balance has fallen by only $118,743, so the balloon due in year 5 is about $1,181,257. The refinance in year 5 is underwritten at that day's rates, values, and NOI — which is why the exit has to be planned at purchase, not at maturity.

Why did the lender cap my LTV below what I asked for?

Usually because a second test failed: the debt service coverage ratio (DSCR). In the worked example, the property's $144,000 NOI covers the 65% loan's $107,782 annual debt service at 1.34x — comfortably above the 1.25x floor many lenders use. Push the same property to 75% LTV and debt service rises to $124,364 a year, coverage falls to 1.16x, and the loan fails the floor even though the borrower asked for a standard LTV. The lender then cuts the loan until DSCR passes. Price, NOI, rate, and amortization set the real maximum loan together — LTV alone does not.

Tỷ lệ vay trên giá trị (LTV) và lịch trả dần (amortization) là gì, người mua người Việt cần kiểm tra gì?

LTV là số tiền vay chia cho giá trị bất động sản: mua $2.000.000 với LTV 65% nghĩa là vay $1.300.000 và tự bỏ $700.000 vốn. Amortization là số năm dùng để tính khoản trả hàng tháng (thường 20, 25 hoặc 30 năm), còn term là thời hạn thật của khoản vay (thường 5, 7 hoặc 10 năm) — khi term ngắn hơn amortization, phần nợ còn lại đến hạn cùng một lúc gọi là balloon. Trong ví dụ trên trang này: vay $1.300.000 lãi 6,75%, amortization 25 năm, trả $8.982 một tháng; sau 5 năm đã trả khoảng $538.911 nhưng nợ gốc chỉ giảm $118.743, nên balloon còn khoảng $1.181.257 phải tái tài trợ hoặc bán. Ba việc phải kiểm tra trước khi ký: (1) LTV tối đa ngân hàng thật sự duyệt sau khi qua bài kiểm tra DSCR; (2) amortization bao nhiêu năm và term bao nhiêu năm; (3) kế hoạch cho balloon — tái tài trợ ở NOI và lãi suất nào thì vẫn đạt. Đây là thông tin giáo dục chung, không phải tư vấn tài chính.

This page is general education, not investment, legal, tax, lending or financial advice. Every figure in the worked example is made up and rounded to teach the mechanics; rates, LTV ranges, and loan figures shown are illustrative assumptions, not quotes for any specific borrower or property. Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 678-707-2498 · dewey.luong@serhant.com