LTV vs. LTC on a fix-and-flip: a worked example
By Francisco Williams, CCIM · CCIM · CalDRE #01979442 · NMLS #1858674 · Updated
Short answer
Loan-to-cost (LTC) compares the loan to purchase plus rehab. Loan-to-value (LTV) compares it to the property's value, and on flips that's often the after-repair value (ARV). Lenders apply limits on more than one measure, and the lowest result sets your maximum loan.
One hypothetical deal
All figures are illustrative, not a quote. Purchase $600,000. Rehab budget $150,000. Total cost $750,000. Appraised ARV $1,000,000.
Suppose a lender caps a loan at 85% of cost and 70% of ARV. The cost cap gives $637,500 and the ARV cap gives $700,000. The lower figure, $637,500, governs, so the investor brings the rest plus closing costs.
Why lenders look at both, and at ARV
LTV protects against the collateral today; LTC measures how much of the project's real cost the borrower is funding; after-repair value (ARV) tests whether the finished property supports the total loan. A deal can pass one test and fail another: a cheap purchase with a big rehab budget can look fine on LTV and stretched on LTC.
The practical lesson: bring the purchase contract, the line-item rehab budget with contractor bids, and the comps behind your ARV. Numbers without sources slow every file down.
| Item | Amount | Ratio |
|---|---|---|
| Purchase price | $600,000 | |
| Rehab budget | $150,000 | |
| Total project cost | $750,000 | |
| As-is value | $620,000 | |
| After-repair value (ARV) | $900,000 | |
| Requested loan | $540,000 | |
| Loan ÷ as-is value (LTV) | 87% | |
| Loan ÷ total cost (LTC) | 72% | |
| Loan ÷ ARV | 60% |
Ratios are rounded. Lenders set their own limits; none are implied here.
Why the binding constraint changes
Buy cheaper relative to ARV and the cost cap tends to bind. Buy closer to retail and the ARV cap binds. Knowing which one limits you shows whether to negotiate the price, trim the rehab, or bring more cash.
CDF's LTC vs. LTV explainer goes deeper, and program parameters are on its fix-and-flip page.
Frequently asked questions
What is the difference between LTV and LTC?
LTV divides the loan by the property value. LTC divides the loan by total project cost (purchase plus rehab).
Which is used on a fix-and-flip loan?
Often both, along with a cap on ARV. The most restrictive result sets the maximum loan.
What is ARV?
After-repair value: the estimated value once the planned work is complete, usually supported by an appraisal.
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