Three letters decide how much you can borrow on a renovation project, and borrowers routinely mix them up. LTV, LTC and ARV measure different things, answer different questions and produce different loan amounts on the same deal. Understanding which one binds on your project is the difference between a term sheet you expected and a phone call you did not.
Three ratios, three questions
Loan to value asks what the property is worth. Loan to cost asks what the project costs and how much of that you are funding yourself. After repair value asks what the finished product will be worth when the work is done.
A lender runs all three because each one catches something the others miss. Value protects against a market that will not pay what you expect. Cost protects against a borrower with nothing at risk. Finished value protects against a plan that cannot support the debt at the end.
LTV: the loan against what it is worth
LTV is the loan amount divided by the property’s value. On a purchase, the value used is the lower of the purchase price and the appraised as-is value, because a price above the appraisal is a fact about the negotiation, not about the property.
LTV is the ratio that creates the equity cushion. If a lender advances at 75% of value, the remaining 25% is what stands between the loan and a loss. Every published leverage band in hard money is ultimately a statement about how much cushion the lender needs for that property type, that borrower and that exit.
Our bridge program publishes LTV up to 75% on residential and 70% on commercial, and the owner occupied bridge publishes up to 70% of the purchase price. Lower published bands go with more risk in the collateral, which is the trade being made.
LTC: the loan against what it costs
LTC is the loan amount divided by the total project cost. On a renovation, total cost is the purchase price plus the renovation budget. On ground-up it is land plus hard costs plus soft costs.
LTC is the skin in the game test. If the loan is 85% of total cost, you are funding the other 15% in cash. A lender cares about that number because a borrower with real money in a project behaves differently from one with none, particularly when the project runs long.
LTC also catches the deal that looks fine on value and is actually a borrower asking to be fully financed. A property bought well below market can produce a comfortable LTV and a 100% LTC at the same time. Lenders decline that combination, and they are right to.
Our fix and flip program publishes up to 85% of the purchase and 100% of the rehab, alongside up to 75% of ARV. Our ground-up construction program publishes LTC up to 80%.
ARV: the loan against what it will be worth
ARV is the projected value once the scope of work is complete. It is not a wish, it is an appraisal opinion built from closed comparable sales of finished properties in the same immediate area, at the finish level you are actually delivering.
ARV matters twice. It caps the total exposure the lender will carry into the project, including the holdback released through draws. And it is the number your exit depends on, whether you sell or refinance.
This is also where the 70% rule lives, the old investor convention that you should not pay more than 70% of after repair value minus renovation costs. It is a rule of thumb, not an underwriting standard, but it encodes something true: the margin has to be built at the purchase, because it cannot be added later.
Two disciplines protect an ARV. Use closed sales, not listings, and keep the radius tight. And do not assume a finish level the neighborhood does not pay for, because over-improving converts budget into nothing.
How the three combine
A lender does not choose a ratio. It runs every applicable test and lends the lowest result.
On a fix and flip file, that typically means three calculations: the loan at the published percentage of as-is value or purchase price, the total loan including holdback at the published percentage of total cost, and the total loan at the published percentage of ARV. The smallest of those is your loan.
This is why our published caps read 85% of the purchase, 100% of the rehab and 75% of ARV together rather than as alternatives. All three apply, all three are ceilings, and the binding one depends on your deal. A property bought at market with a heavy renovation is usually cost constrained. A property bought well with a light renovation is usually value constrained.
Why lenders take the lower number
Because each ratio fails in a different market and the lender has to survive all of them.
If values fall, LTV was the protection. If the renovation overruns, LTC was the protection, because the borrower’s own money absorbs the first losses. If the finished product does not appraise where projected, the ARV cap was the protection.
Taking the lowest result is not conservatism for its own sake. It is what lets a lender publish leverage that high and still fund quickly, because the structure does the work that a two month underwriting process would otherwise have to do.
What this means for you
Run all three tests before you make the offer. The most common surprise in fix and flip lending is a borrower who sized the deal on one ratio and discovered a second one binding at term sheet stage.
Then look at the gap. The difference between your total project cost and the loan the tests produce is the cash you need at the table, plus carrying costs and a contingency. Our post on how much money you need to flip a house breaks that down, and the fix and flip financing guide covers the full structure.
Bring the address, the price, the budget and the comparable set to (619) 617-2797 or the borrow page and we will run the tests with you rather than after you.
