LTV, LTC, and ARV: The Three Ratios That Determine Every Deal

If you've ever gotten a term sheet back that looked nothing like what you expected, chances are one of three ratios was the culprit. Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair Value (ARV) aren't just lender jargon — they're the actual math that decides how much money you can borrow, how much cash you need to bring, and whether a deal pencils at all.

Most new investors have heard these terms. Fewer understand how they interact, and even fewer realize that different loan types lean on different ratios entirely. Get this foundation right, and every future post on fix & flip, purchase, refi, and construction financing will make a lot more sense.

Loan-to-Value (LTV): What the Property Is Worth Today

LTV compares your loan amount to the current, as-is value of the property.

Formula: Loan Amount ÷ Current Appraised Value = LTV

If a property appraises for $300,000 and you're borrowing $225,000, your LTV is 75%.

LTV is the ratio you'll see most on:

• Conventional purchase loans
• Rate & term refinances
• Cash-out refinances (where current value, not future value, sets the ceiling)

Lenders cap LTV to protect themselves if they have to foreclose and resell. A 75% LTV cap means they believe the property could drop 25% in value and they'd still recover their money in a sale. The lower the perceived risk (owner-occupied, strong market, borrower experience), the higher the LTV a lender will typically allow. The higher the risk (investment property, volatile market, thin borrower track record), the lower that ceiling drops.

Where investors get tripped up: LTV is based on appraised value, not purchase price or your own estimate. If you buy a property below market value, that's good news for your equity position — but it doesn't automatically increase your loan amount. The appraisal, not the purchase contract, sets the LTV calculation.

Loan-to-Cost (LTC): What You're Actually Spending

LTC compares your loan amount to the total cost of the project — not the value of the finished product.

Formula: Loan Amount ÷ Total Project Cost (Purchase + Rehab/Construction) = LTC

Say you're buying a fix & flip for $150,000 and budgeting $50,000 in rehab. Total cost is $200,000. If a lender offers 85% LTC, your maximum loan is $170,000 — and you're responsible for the remaining $30,000 in cash, plus any costs the appraisal or budget doesn't capture.

LTC shows up primarily on:

• Fix & flip loans
• Ground-up construction loans
• Any deal where a lender is funding both acquisition and improvement dollars

Why it matters more than LTV here: On a rehab or construction deal, the property isn't worth much yet — it's a construction site or a distressed asset. Lenders funding the plan, not just the dirt, need a ratio tied to what you're spending to execute that plan. LTC keeps skin in the game proportional to project cost, which is a better risk signal than current value alone.

Where investors get tripped up: LTC caps are often lower than people expect (70–85% is common), and "total cost" sometimes includes items borrowers forget to budget for — permits, holding costs, contingency reserves. Underestimate your total cost and you'll either underestimate your required cash-to-close or get surprised when the lender's number doesn't match yours.

After-Repair Value (ARV): What It Will Be Worth When You're Done

ARV is the projected value of the property after the rehab or construction is complete — based on comparable sales of similar, already-renovated or newly-built properties in the area.

Formula (used by lenders): Loan Amount ÷ ARV = LTV-of-ARV (often just called "ARV percentage")

If a lender caps you at 70% of ARV, and comparable finished properties in the neighborhood are selling for $280,000, your maximum loan amount tops out around $196,000 — regardless of what your purchase + rehab costs actually total.

ARV shows up on:

• Fix & flip loans (almost universally)
• BRRRR refinances (this is the number that determines your payday — more on that in a future post)
• Some construction loans, particularly build-to-sell projects

Why lenders care about ARV: It's their exit strategy insurance. If you default mid-project, the lender needs to know what they can realistically sell the finished (or partially finished) property for. ARV grounds the loan in a forward-looking, market-based number rather than your budget spreadsheet.

Where investors get tripped up: ARV is an appraiser's opinion, not yours, not your realtor's comps, and not what you saw a similar house list for last month. Appraisers use closed sales, adjust for condition and features, and often come in more conservative than investors expect — especially in appreciating or thin-comp markets. A deal that looks great on your own ARV estimate can fall apart entirely once a licensed appraiser weighs in.

How the Three Ratios Work Together

Here's the part that trips people up most: on a single deal, a lender often applies more than one ratio and lends based on whichever number is lowest.

Example — a $150,000 purchase, $50,000 rehab budget, $280,000 projected ARV:

RatioCapResulting Max LoanLTC85% of $200,000 total cost$170,000ARV70% of $280,000$196,000

In this case, LTC is the binding constraint — even though the ARV math would technically allow a bigger loan. The lender lends the lower of the two numbers, because that's the more conservative (safer) figure. This is exactly why two lenders quoting the "same" 70% ARV and 85% LTC can land on identical numbers, and why changing your rehab budget by even a few thousand dollars can shift your entire loan amount.

Why This Matters Before You Ever Talk to a Lender

Understanding which ratio is likely to bind on your deal type lets you reverse-engineer your numbers before you're sitting across from underwriting:

• Buying a rental at market value? LTV is your ceiling — know the likely appraisal before you get attached to a purchase price.
• Fix and flipping? Run both LTC and ARV math yourself. Whichever is lower is your realistic loan amount — plan your cash-to-close around that number, not the more optimistic one.
• Building ground-up? LTC will almost always govern, since there's no existing structure to anchor an LTV calculation until later draws.
• Refinancing out of a BRRRR? The gap between your all-in cost and the new appraisal (ARV, essentially, at this stage) determines how much cash you get back — and whether the deal actually returns capital the way your spreadsheet promised.

None of this replaces getting real quotes from real lenders. But walking into that conversation already knowing your LTC and ARV math means you'll recognize a fair term sheet from a lowball one — and you won't be caught off guard when the number on the page doesn't match the number in your head.

About the Author

Matt Hiltner is the owner of Build Lending, a real estate lending and capital brokerage/advisory firm. With 15+ years in real estate finance and capital markets and $800M+ in transactions advised — spanning fix-and-flip, multifamily, and subdivision development — he underwrites deals the way lenders do, because he's been the investor and developer on the other side of the table, not just the broker. If you're working through the financing on a deal and want a second set of eyes on the structure, Build Lending is a resource worth having in your corner.