LTV vs. LTC vs. ARV: what each leverage ratio tells a lender

Private real estate lenders size loans with three ratios: loan-to-value (LTV), loan-to-cost (LTC) and loan-to-after-repair-value (often written LTARV or ARLTV). Each answers a different question about risk, and on renovation and construction loans you usually need all three.

Loan-to-value (LTV)

LTV = loan amount ÷ current property value

LTV measures how much of the property's current value is being borrowed. The value usually comes from a third-party appraisal.

What it tells you: how much equity cushion protects the loan today. At 65% LTV, the property could lose 35% of its value before the loan exceeds it, before accounting for the costs of foreclosure and sale.

Where it's used most: bridge loans, DSCR loans and cash-out refinances, where the property is already worth what it's worth.

Loan-to-cost (LTC)

LTC = loan amount ÷ total project cost

Total project cost is usually the purchase price plus renovation or construction costs, and sometimes closing costs, interest reserves and other soft costs, depending on the program.

What it tells you: how much of the project the borrower is funding with their own money. At 85% LTC, the borrower is putting in 15% of the total cost. That's their skin in the game.

Where it's used most: fix and flip and ground-up construction, where cost is a more reliable anchor than a current value that will change as work is done.

After-repair value (ARV) and loan-to-ARV

Loan-to-ARV = loan amount ÷ after-repair value

ARV is the appraiser's estimate of what the property will be worth once the planned work is complete, based on comparable finished properties.

What it tells you: whether the finished project supports the loan. It's the ratio most tied to the exit, because the borrower will usually sell or refinance at or near ARV.

Where it's used most: fix and flip, value-add bridge and construction loans (where it's often called "as-completed value").

One project, three ratios

Hypothetical figures, for illustration only.

An investor buys a house that needs renovation.

Item	Amount
Purchase price	$300,000
Renovation budget	$100,000
Total project cost	$400,000
Current (as-is) appraised value	$310,000
After-repair value (ARV)	$550,000

The lender offers a loan covering 90% of the purchase price and 100% of the renovation budget:

• Loan amount = ($300,000 × 90%) + $100,000 = $370,000

Now the three ratios:

Ratio	Calculation	Result
LTV (as-is)	$370,000 ÷ $310,000	119%
LTC	$370,000 ÷ $400,000	92.5%
Loan-to-ARV	$370,000 ÷ $550,000	67%

Note that the as-is LTV is over 100% once the full renovation budget is counted. That's why renovation loans release the renovation money in draws as work is completed, rather than at closing. At closing, only $270,000 is advanced, about 87% of the as-is value. The rest follows as value is built.

The same loan looks very different through each lens:

• LTC (92.5%) says the borrower has limited cash in the deal.
• Loan-to-ARV (67%) says the finished property should comfortably support the loan, if the ARV is right and the work gets done.

A lender would weigh these together and might adjust: for example, lending less on the purchase to raise the borrower's equity, or requiring more experience for a deal this dependent on ARV.

Why lenders use more than one ratio

Each ratio has a blind spot:

• LTV alone ignores how much the borrower is investing and what the property will be worth after work.
• LTC alone ignores whether the project is a good deal. A borrower can overpay, and LTC won't notice.
• Loan-to-ARV alone relies entirely on a future value that depends on the work being done well and the market holding up.

Programs often cap all three, and the loan amount is the lowest result.

What capital partners should check

• Where each value came from. An independent appraisal, with as-is and ARV, not a borrower estimate.
• How "cost" was defined. Does it include closing costs, interest reserves and soft costs?
• How much of the loan is advanced at closing vs. held back for draws.
• The ARV comps. Are they truly comparable finished properties nearby?
• The borrower's equity, in cash, at closing.

Quick reference

	LTV	LTC	Loan-to-ARV
Denominator	Current value	Total project cost	Value after work
Main question	Equity cushion today	Borrower's skin in the game	Does the finished project support the loan?
Best for	Bridge, DSCR, refinance	Fix and flip, construction	Fix and flip, value-add, construction
Main risk it misses	Future value, borrower equity	Overpaying	Execution and market risk

Key takeaways

• LTV measures today's equity cushion, LTC measures the borrower's investment, and loan-to-ARV measures whether the finished project supports the loan.
• On renovation and construction loans, look at all three: each has a blind spot the others cover.
• The quality of the inputs (appraisal, budget, comps) matters as much as the ratios.

How Lender Capital fits

Every loan placed through Lender Capital comes with the appraisal and, for renovation and construction loans, the budget and draw schedule, so capital partners can check LTV, LTC and ARV for themselves before committing. Lenders get capital for the loans they can't hold; capital partners get the full file.

See how it works for lenders or for capital partners.