What do LTC and ARV mean on a flip loan?
LTC, loan-to-cost, is the loan as a percentage of purchase price plus rehab budget, typically capped at 80 to 90 percent; ARV, after-repair value, is the appraised value once the work is done, and lenders cap the loan at 65 to 75 percent of it. The loan is always the lower of the two limits, which is why a great purchase price does not help if the ARV comes in low.
Definitions
| Term | Formula | Typical cap |
|---|---|---|
| LTC (loan-to-cost) | Loan ÷ (purchase price + rehab budget) | 80 to 90 percent |
| LTV (loan-to-value, as-is) | Loan ÷ current value | 65 to 75 percent |
| LTARV (loan-to-after-repair-value) | Loan ÷ appraised value after the work | 65 to 75 percent |
Ranges vary by lender and by borrower experience.
Why both matter
LTC protects the lender from funding more than the project costs. ARV protects the lender if the project fails: at 70 percent of the finished value, the lender can sell a completed or nearly completed property and recover the balance. Together they mean the lender will not fund a project where the cost is too close to the finished value.
A worked example
Purchase $250,000, rehab $80,000, ARV $450,000.
- 90 percent LTC: $297,000
- 70 percent of ARV: $315,000
- Loan: $297,000, the lower number
- Your cash: $33,000 of cost plus closing costs and working capital
Now change the ARV to $400,000: 70 percent is $280,000, so the loan drops to $280,000 and your cash rises to $50,000. The purchase did not change; the finished value did.
How ARV is established
An appraiser or a broker opinion values the property as if the scope is complete, using recent sales of renovated comparable homes. Your scope, finish level, and comps drive the number. Give the appraiser a detailed scope and three renovated comps within a mile; a vague scope gets a conservative ARV.
Where borrowers get surprised
- ARV below the estimate. The most common reason a loan comes in short. Verify comps before you write the offer.
- Rehab budget added to cost but not to value. A $30,000 pool may add $10,000 of value. LTC counts the $30,000; ARV counts the $10,000.
- Over-improving for the neighborhood. Finishes above the comps do not raise the ARV.
- Experience tier. A first flip is capped lower on both measures.
The margin behind the numbers
ARV minus purchase, rehab, financing costs, carrying costs, and 6 to 8 percent selling costs is your profit. Lenders read that margin as closely as the caps, because a thin margin means a small overrun turns the flip into a loss they may end up owning.
How CommFi handles it
Our lending desk sizes the loan against LTC and ARV and shows you the cash required and the margin before you commit. It funds direct when it fits, and when a lender with higher caps for your tier is the better match, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- What does LTC mean on a flip loan?
- Loan-to-cost: the loan divided by purchase price plus rehab budget. Lenders typically cap it at 80 to 90 percent.
- What does ARV mean?
- After-repair value: the appraised value once the planned work is complete. Lenders cap the loan at 65 to 75 percent of it.
- Which limit decides my loan amount?
- The lower of the LTC cap and the ARV cap.
- How do I support a higher ARV?
- Give the appraiser a detailed scope, the finish level, and three recent renovated comps within a mile.
- Why did my loan come in lower than the quote?
- Usually the ARV appraisal came in under your estimate, so the ARV cap became the controlling limit.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.