LTC vs LTV vs ARV: How Lenders Size a Hard Money Loan

Why three ratios instead of one

A conventional mortgage is usually sized with a single ratio: loan-to-value. A renovation or construction loan is harder to size because the property is changing. On day one it is worth its as-is value. You are spending money to turn it into something worth more. And the lender will advance money in stages as the work is done.

So hard money lenders look at the deal from three angles:

• Cost: how much cash is going into the project, and how much of it is yours.
• Current value: what the lender could recover if it had to sell the property today.
• Future value: what the lender could recover once the work is finished.

Each angle produces a maximum loan. The lender lends the smallest one. Understanding which limit is binding on your deal tells you exactly what lever to pull, whether that’s negotiating the price, trimming the scope, supporting a higher ARV, or simply bringing more cash.

Quick definitions

Ratio	Formula	What it protects against	Typical hard money range
LTV (loan-to-value)	Loan ÷ as-is value	Overpaying or overborrowing against today’s value	Often 65–80% on bridge loans
Purchase LTC	Initial advance ÷ purchase price	Borrower having too little cash in the acquisition	Often 80–90%
Total LTC (loan-to-cost)	Total loan ÷ (purchase + rehab or construction costs)	Borrower having too little equity in the whole project	Often 80–90%
Loan-to-ARV	Total loan ÷ after-repair value	The finished property not being worth enough to repay the loan	Often 65–75%

These ranges describe common patterns, not rules. Lenders adjust them for experience, credit, property type, location and loan size, and some use slightly different definitions. Always ask a lender exactly what goes into the numerator and denominator.

Loan-to-value (LTV): the as-is number

LTV is the familiar ratio from home mortgages: the loan amount divided by the property’s value. The Consumer Financial Protection Bureau has a short explainer on what a loan-to-value ratio is, and the Fannie Mae Selling Guide defines LTV and related ratios in detail for conventional loans.

In hard money lending, “value” in LTV usually means as-is value: what the property is worth in its current condition, from an appraisal or other valuation. It matters most in two situations:

• Bridge loans and refinances, where there is no new purchase price and the as-is value is the main measure of collateral.
• Purchases at a price above as-is value, where the lender doesn’t want to finance an overpayment.

For purchases, many lenders base the initial advance on the lower of the purchase price and the as-is value. If you buy a house for $150,000 that appraises at $200,000 as-is, a lender offering 90% will usually lend 90% of $150,000 ($135,000), not 90% of $200,000. Some lenders do give credit for instant equity on a discounted purchase, especially for experienced borrowers, but don’t assume it.

Loan-to-cost (LTC): purchase LTC vs total LTC

LTC measures the loan against what you’re actually spending. It shows up in two forms, and mixing them up is one of the most common sources of confusion on term sheets.

Purchase LTC (initial advance)

The share of the purchase price the lender funds at closing. “90% of purchase” means you bring 10% of the price, plus closing costs.

Rehab funding

The share of the renovation budget the lender will fund through draws. Many fix and flip lenders fund up to 100% of an approved budget, released after each phase of work is inspected; see how construction and rehab draws work.

Total LTC

The total loan (initial advance plus rehab funds) divided by total project cost (purchase plus rehab). A lender might quote “90% of purchase, 100% of rehab, up to 85% total LTC.” The total LTC cap can bind even when the first two look generous.

What counts as cost varies. Some lenders include closing costs, points or soft costs such as permits and plans; others count only purchase price and hard construction costs. A broader cost definition produces a larger LTC-based loan, so it is worth asking.

Loan-to-ARV: the future value check

Loan-to-ARV divides the total loan by the after-repair value: what the property should be worth when the work is done. On ground-up construction it is often called loan-to-completed-value or loan-to-as-completed-value.

This ratio protects the lender against the possibility that, even if every dollar is spent exactly as planned, the finished house isn’t worth enough. It is usually the most conservative percentage of the three (often 65–75%) because ARV is an estimate of the future and depends on comparable sales. Our guide on how hard money lenders calculate ARV explains where that number comes from and why it often comes in below the borrower’s estimate.

Loan-to-ARV tends to bind on deals with large rehab budgets relative to the value they create, and in markets where renovated comps don’t support a big jump in price.

Worked example: the maximum loan is the lowest limit

Here is a hypothetical fix and flip. The numbers are illustrative, not a quote.

• Purchase price: $250,000
• As-is value: $260,000
• Rehab budget: $80,000
• Total cost: $330,000
• ARV: $420,000

The lender offers 90% of purchase, 100% of rehab, 85% total LTC and 70% loan-to-ARV.

1. Purchase plus rehab: 90% × $250,000 = $225,000, plus $80,000 rehab = $305,000.
2. Total LTC: 85% × $330,000 = $280,500.
3. Loan-to-ARV: 70% × $420,000 = $294,000.

The lowest result is $280,500, so total LTC is the binding limit. Lenders usually keep the full $80,000 rehab budget in the loan and reduce the initial advance instead: $280,500 − $80,000 = $200,500 at closing, about 80% of the purchase price. Your down payment becomes $49,500 rather than the $25,000 that “90% of purchase” might have suggested.

Same deal, lower ARV

If the appraisal comes back at $380,000 instead, the ARV limit drops to 70% × $380,000 = $266,000, now below the LTC limit. The initial advance falls to $186,000 and your down payment rises to $64,000. Same house, same budget, $14,500 more cash, all because of one number.

You can run your own scenarios with the LTC calculator, which compares each limit and shows which one binds.

How the ratios work on bridge loans

A bridge loan is typically short-term financing on a property that doesn’t need a major renovation, or where you are refinancing out of an existing loan, buying before selling another property, or stabilizing a rental before long-term financing. With little or no rehab, the ratios simplify:

• Purchase bridge: the lower of a purchase LTC limit and an as-is LTV limit.
• Refinance bridge: an as-is LTV limit, sometimes lower for cash-out than for a rate-and-term payoff.

For example, if you own a duplex with an as-is value of $400,000 and an existing $250,000 loan, a lender offering 75% LTV on a refinance would cap the new loan at $300,000. After paying off the existing loan and closing costs, your cash out would be well under $50,000. Lenders may also cap cash-out more tightly or require the property to have been owned for a minimum period. Learn more on the bridge loans page.

How the ratios work on ground-up construction

Construction loans use the same logic with different inputs. Total cost usually includes land, hard costs (labor and materials) and, depending on the lender, soft costs such as architecture, engineering, permits and impact fees. The value test is loan-to-completed-value.

A hypothetical new single-family build:

• Land: $120,000
• Hard costs: $380,000
• Soft costs: $50,000
• Total cost: $550,000
• Completed value: $750,000

At 85% LTC the limit is $467,500. At 70% of completed value it is $525,000. The loan is $467,500, and you contribute $82,500 of equity. If you already own the land free and clear, many lenders credit some or all of its value or cost toward your equity, which can reduce the cash you need.

For context, banks and savings institutions operate under interagency real estate lending standards that list supervisory LTV limits by loan type; the FDIC’s version appears in 12 CFR Part 365. Private lenders aren’t bound by those standards, but they help explain why land and construction loans generally carry lower leverage than loans on finished homes. The Census Bureau’s construction spending data is a useful backdrop if you track the broader building market. See ground-up construction loans for more on how these loans are structured.

Things that quietly change your ratios

• Financed points and fees. If points are added to the loan rather than paid at closing, the loan amount rises and may hit a cap sooner.
• Interest reserves. Some construction loans include a reserve for interest payments in the loan amount, which counts toward LTC.
• Change orders. If the rehab budget grows mid-project, the lender may not increase the loan. You fund the overage.
• Assignment fees. On wholesale deals, some lenders count the assignment fee as part of cost and some don’t.
• Appraisal timing. A valuation ordered before a market shift can be revisited if closing is delayed.

What to do when each limit binds

Once you know which ratio is setting your loan, you know where to focus. Each limit responds to a different lever.

When purchase LTC or as-is LTV binds

The acquisition is the constraint. Negotiating a lower price helps directly: every $10,000 off the price on a 90% purchase LTC loan cuts your down payment by $1,000 and the loan by $9,000, which also lowers interest and points. If the as-is value came in below the contract price, the appraisal is also useful leverage in that negotiation.

When total LTC binds

Your equity share across the whole project is too thin for the lender. Options include bringing more cash, trimming lower-value items from the scope, asking whether the lender counts closing costs or soft costs as part of cost, or comparing lenders with a higher total LTC cap for your experience level.

When loan-to-ARV binds

The finished value doesn’t support the loan. Look again at whether your scope matches what renovated comps actually include, whether you have missed stronger comparable sales, or whether the deal’s margin is simply too thin. A binding ARV limit is often the clearest early signal that a project is overpriced or over-improved.

Comparing lenders on LTC, LTV and ARV

Headline leverage numbers can be misleading in isolation. A lender advertising “up to 90% LTC” may also cap loan-to-ARV at 65%, which on many deals produces a smaller loan than a competitor offering 85% LTC and 75% of ARV. And the cheapest rate isn’t much use if the loan is $30,000 short of what you need.

The useful comparison is the maximum loan each lender would make on your specific deal, plus the total cost of that loan over your expected hold. Hard Money Lender Match is designed around that idea: you enter one deal, and each anonymized lender’s quote shows the loan amount alongside rate, points, fees and estimated total cost, so the binding limit and the price are visible together. Try it in the comparison tool.