5 min read
Understanding LTC, LTV, and ARV
Three acronyms that shape how much a private lender will finance — and how they interact on a renovation deal.
If you're new to private lending, three acronyms come up constantly: LTC, LTV, and ARV. Each answers a slightly different question about how much a lender is willing to finance, and understanding the difference helps you evaluate a quote accurately.
LTV — Loan-to-Value
Loan-to-value compares the loan amount to the property's current value. A lender offering financing at a given LTV is limiting the loan to a percentage of what the property is worth today, before any renovation work.
LTC — Loan-to-Cost
Loan-to-cost compares the loan amount to the total cost of the project — typically the purchase price plus the renovation budget. This matters on a fix-and-flip or construction deal, where the lender is financing both the acquisition and the work needed to reach the finished property.
ARV — After-Repair Value
After-repair value is an estimate of what the property will be worth once planned renovations are complete. Some lenders size a portion of the loan against ARV rather than the current, as-is value, which can allow for higher leverage on a deal with meaningful upside from the renovation.
How they interact
On a typical renovation deal, a lender may reference more than one of these measures at once — for example, capping the loan at a percentage of cost while also capping it at a percentage of ARV, and financing whichever number is lower. Ask any lender you're evaluating exactly which measures they use and how they interact for your specific deal, since the combination materially affects how much cash you'll need to bring to closing.