LTV, LTC and ARV: Three Caps, and Which One Binds Your Deal
Your lender will quote you "90% LTC and 70% ARV" as if those are two features. They are two ceilings, and you get the lower of them.
Add as-is LTV on some programs and there are three. The loan is the smallest number the three produce, every time.
Investors who model only LTC consistently overestimate their loan and show up short at closing. Here is how to calculate all three and find the one that actually binds.
Programs: Fix and flip financing · Run the numbers
The three ratios
LTC — loan to cost
LTC = Loan ÷ (Purchase price + Rehab budget)
Your total project cost is the denominator. Lenders usually express this in two parts:
- 80-90% of purchase price
- 100% of rehab, released in draws
So a lender offering "90% purchase, 100% rehab" on a $250,000 purchase with $70,000 of rehab commits up to:
$225,000 + $70,000 = $295,000
Note that blended against total cost of $320,000, that is 92% LTC — higher than the headline number, because rehab is funded at 100%.
ARV — after repair value
Loan ≤ ARV × cap
Typically 65-75% of the appraiser's after-repair value.
At a $390,000 ARV and a 70% cap:
$390,000 × 0.70 = $273,000
This is the lender's protection. If everything fails and they foreclose on a finished property, they want room between the loan and the sale price.
LTV — as-is value
Loan ≤ Current as-is value × cap
Used on some programs, typically 65-75% of the property's value today, before any work.
At a $240,000 as-is value and 70%:
$240,000 × 0.70 = $168,000
Not every lender applies this on a rehab loan. Where they do, it usually binds hardest on heavy rehabs, because the as-is value is low by definition.
Finding the binding constraint
Same deal, all three:
| Cap | Calculation | Result |
|---|---|---|
| LTC | 90% of $250k + 100% of $70k | $295,000 |
| ARV | 70% of $390,000 | $273,000 |
| LTV | 70% of $240,000 | $168,000 |
| Loan | lowest | $168,000 |
If the lender applies as-is LTV, your loan is $168,000 — not the $295,000 the LTC headline implied.
Your cash requirement:
$320,000 total cost − $168,000 loan = $152,000, plus closing costs and float.
An investor who budgeted from LTC alone planned on $25,000 down and needs $152,000.
Most fix-and-flip programs do not apply as-is LTV, precisely because it makes heavy rehabs impossible. But some do, and you must ask. Without LTV, this deal funds at $273,000 — ARV binding — and requires $47,000 down.
That is a $105,000 swing based on one question.
Illustrative. Caps and program structures vary by lender.
Which cap binds, by deal type
| Deal | Usually binds | Why |
|---|---|---|
| Light cosmetic, strong ARV | LTC | Rehab is small, ARV has room |
| Heavy rehab, strong ARV | LTC | Big rehab spend drives cost up |
| Any rehab, thin ARV | ARV | Not enough spread between cost and value |
| Distressed purchase, big lift | LTV, where applied | As-is value is very low |
| Overpaid on purchase | ARV | Cost approaches value |
The pattern worth internalizing: LTC binds on good deals, ARV binds on thin ones.
If ARV is your binding constraint, the deal has a margin problem, not a financing problem. The lender is telling you the spread between what you are putting in and what it will be worth is too small. That is worth hearing.
Working backwards to a maximum offer
This is the practical use. Rather than finding a property and hoping, calculate your ceiling first.
Given an ARV of $390,000, a 70% ARV cap, a 90% purchase / 100% rehab LTC, a $70,000 rehab budget, and $50,000 of available cash:
Step 1 — maximum loan from ARV: $390,000 × 0.70 = $273,000
Step 2 — the loan covers rehab first: $273,000 − $70,000 rehab = $203,000 available for purchase
Step 3 — that is 90% of purchase: $203,000 ÷ 0.90 = $225,555 maximum purchase price
Step 4 — check your cash: $225,555 − $203,000 = $22,555 down, plus roughly $12,000 closing and points, plus draw float. Comfortably inside $50,000.
So your maximum offer is about $225,000, and you know it before you walk the property.
Investors who run this calculation bid faster and more confidently than those who do not, and they stop wasting time on properties that cannot work.
Changing the binding constraint
If ARV binds:
- Negotiate the purchase price down. This is the only real fix.
- Reduce the rehab scope if some of it does not add proportional value.
- Contest the ARV with better comparables, if you have genuine ones. How to contest.
- Find a lender with a higher ARV cap — 75% exists, usually for experienced borrowers.
If LTC binds:
- Find a lender with higher purchase leverage. 90% exists for experienced investors; first-timers often see 80%. The experience tier effect.
- Bring more cash.
If as-is LTV binds:
- Find a lender that does not apply it on rehab loans. Most do not.
Experience changes all three
Leverage is tiered by track record, and the difference is large.
| Tier | Purchase LTC | ARV cap |
|---|---|---|
| First flip | 80-85% | 65-70% |
| 2-4 completed | 85-90% | 70% |
| 5+ completed | 90% | 70-75% |
Between a first-timer and a seasoned investor on the same property, the cash requirement can differ by $30,000-$50,000.
This is why documenting your completed projects matters. A HUD-1 or closing statement from each prior flip is worth real money on your next file.
The rehab budget is a leverage input, not just a cost
One consequence of the LTC formula that investors miss: increasing your rehab budget increases your loan.
Rehab is funded at 100% on most programs and sits in the LTC denominator. Adding $20,000 of scope adds $20,000 of loan commitment, as long as ARV still has room.
That cuts both ways.
Where it helps: a scope item you were going to pay for out of pocket can often be moved into the financed budget instead, preserving your working capital for the draw float. Roof, HVAC, electrical — the expensive systems — belong in the financed scope, not on your credit card.
Where it hurts: padding the budget to get a bigger loan pushes you toward the ARV cap without adding value. If $20,000 of additional scope adds $8,000 of after-repair value, you have spent leverage to make the deal worse. The lender's ARV cap will eventually catch it, but not before you have committed to the work.
The test: does this scope item return more than a dollar of ARV per dollar spent? Kitchens, bathrooms and curb appeal usually clear it. Structural work and system replacement usually do not add proportional value — but they are often required to reach a habitable condition rating at all, which is a different reason to do them.
Budget honestly. A scope built to maximize leverage rather than to produce value is the fastest route to a thin deal.
Frequently asked questions
How much can I borrow for a fix and flip? The lowest of your lender's LTC, ARV and as-is LTV caps. Commonly 80-90% of purchase plus 100% of rehab, capped at 65-75% of after-repair value.
What is the difference between LTC and ARV? LTC measures the loan against what you are spending. ARV measures it against what the finished property is worth. Lenders apply both and fund the lower.
Do lenders fund 100% of rehab? Many do, released in draws after inspection, as long as the ARV cap is not breached.
Can I get 100% financing on a flip? Effectively no. Some deals bought far under market approach it because the ARV cap allows a loan near total cost, but that is a function of the discount, not a product feature.
Which constraint usually binds? LTC on strong deals, ARV on thin ones. If ARV is binding, your margin is too small.
Does experience change my leverage? Materially. Documented completed projects can move purchase LTC from 80% to 90% and ARV from 65% to 75%.
How do I calculate my maximum offer? Start from ARV × the cap, subtract the rehab budget, then divide by the purchase LTC percentage. That is your ceiling.
Next steps
Run the maximum-offer calculation before you tour anything. It takes two minutes and it stops you bidding on deals that cannot fund.
Have a deal you want looked at?
Send the property and the numbers — we shop it across lender programs and tell you honestly whether it works.
Talk To A Loan OfficerRelated Reading
Educational content, not a commitment to lend or an offer of credit. DSCR and fix-and-flip loans are business-purpose loans secured by non-owner-occupied property. Program parameters vary by lender and change over time. Figures are illustrative.