LTV, ARV and LTC: Which Ratio Is Actually Constraining Your Deal
Investors ask what leverage they can get and expect one number back. There are three, they are applied at once, and you are given the smallest result. Which of the three is actually deciding your loan changes as your purchase price moves — and the moment control passes from one test to another, your cash requirement jumps in a way the ratios themselves do not advertise.
Here is how to work out which one is binding on your deal before you go under contract.
The three tests
- The purchase advance — a percentage of the purchase price, often quoted as LTV or LTP. This sets the acquisition money.
- LTC, loan to cost — a percentage of purchase plus rehab together. This caps the whole facility against what you are into the deal for.
- LTARV, loan to after-repair value — a percentage of the finished value. This caps the whole facility against the exit.
The rehab budget is usually advanced separately, in draws, against completed work. So your maximum draw is the purchase advance plus the rehab holdback — then LTC and LTARV each get a chance to cut it down.
Watch control pass from one test to another
Same ARV, same rehab budget, three different purchase prices. Indicative caps: 85% of purchase, 90% LTC, 70% LTARV.
| Purchase price | All-in cost | 85% of purchase + rehab | 90% of cost | 70% of ARV | Loan | Cash in |
|---|---|---|---|---|---|---|
| $200,000 | $260,000 | $230,000 | $234,000 | $280,000 | $230,000 | $30,000 |
| $240,000 | $300,000 | $264,000 | $270,000 | $280,000 | $264,000 | $36,000 |
| $270,000 | $330,000 | $289,500 | $297,000 | $280,000 | $280,000 | $50,000 |
In the first two rows the purchase advance is binding. Nothing else is close, and your cash requirement tracks the purchase price in a straight line: 15% of whatever you pay.
In the third row the ARV ceiling takes over. Purchase price rose $30,000 between those rows and the cash you have to bring rose $14,000 — nearly half the increase, out of pocket, because you crossed from one binding test to another. Push another $10,000 onto the purchase price and all $10,000 of it is yours, because the ceiling above you no longer moves.
That is the number to carry into a negotiation. Not “what is my LTV,” but which test is binding at this price, and where does the next one take over?
Finding your own crossover
The crossover is where the purchase advance plus rehab equals the ARV ceiling. On the caps above, with a $60,000 rehab budget and a $400,000 ARV:
- ARV ceiling: 70% × $400,000 = $280,000
- Take off the rehab holdback: $280,000 − $60,000 = $220,000 of acquisition money
- That is 85% of a purchase price of $258,824
Below roughly $259,000, the purchase advance decides your loan. Above it, the ARV ceiling does, and every extra dollar of purchase price is a dollar of your own cash. Run that calculation once for your own caps and you will know, before you write an offer, exactly where the ground shifts.
The softest number is the one doing the most work
Here is the uncomfortable part. Purchase price is a fact — it is on the contract. Rehab cost is close to a fact once you have a real bid. ARV is an opinion, and formally so.
An appraisal of a property as it will be after repairs that have not happened yet is produced under what USPAP calls a hypothetical condition: a condition contrary to what the appraiser knows to exist on the effective date, used for the purposes of analysis. It is not an extraordinary assumption, which is something unverified but possibly true. The repairs are knowably not done. The appraiser must disclose the hypothetical condition in the report under Standards Rule 2-1(c).
So the least certain input in the stack — a value contingent on work that does not yet exist, resting on comps chosen by a third party you do not select — is the one holding the ceiling on the deals where you are paying up. That is worth knowing before you build a purchase price around an ARV you calculated yourself.
The practical response is the same as always: support the number. Three closed sales, same submarket, similar finish, inside twelve months, handed over with the scope of work. An appraiser working under a hypothetical condition is constructing a value for a house that does not exist yet, and what you give them shapes it.
When this is the wrong thing to optimise
When you are chasing the highest ratio rather than the lowest cost. The programme quoting 75% LTARV against another’s 70% may be charging a point more and a point and a half in rate for the privilege. On the third row above, that extra 5% of ARV is $20,000 of borrowed money. If it costs $6,000 over the hold to have it, you are financing a shortfall expensively rather than solving it. Sometimes right, often not — do the arithmetic rather than taking the bigger number.
When the binding test is telling you something true. If the ARV ceiling is cutting your loan hard, the market is saying your purchase price is high relative to the finished value. That is not a financing problem to engineer around. It is the deal being thin, and the appraisal is where it will surface whether you address it now or not.
When you are not actually short of cash. Maximum leverage is not free — it costs interest on the drawn balance every month. If you have the capital and the deal is a five-month cosmetic flip, taking less money and paying less for it is frequently the better trade.
What to do with this
- Ask for all three caps, not “your LTV.” One number cannot answer the question, and a quote that gives you only one is incomplete.
- Calculate your crossover before you offer. One line of arithmetic tells you the price above which every extra dollar is yours.
- Ask whether the rehab holdback counts inside the ARV ceiling. It usually does, which is what makes the third row bite. Confirm rather than assume.
Where this fits
The fix and flip program page covers how these facilities are structured and drawn, and the hard money page covers the asset-led underwriting behind them. Current indicative pricing is on the rates page. If you want to know which test binds on a specific deal, send it over with the purchase price, rehab budget and your ARV support — that is enough to give you a real number. We are compensated by the lender when a transaction closes, so asking costs nothing.
Easy Lending USA is a referral service, not a lender. All ratios and figures here are indicative and illustrative, not offers of credit. Financing discussed is business-purpose, secured by non-owner-occupied investment property and made to business entities. Actual caps are set by the lender that underwrites your file and are subject to underwriting.