LTV, LTC, and LTARV are three core metrics used in hard money lending. They may sound similar, but each one measures a different part of the deal and helps lenders understand risk, leverage, and how much they can safely finance. Knowing how these ratios work makes it much easier to structure your project and estimate your cash requirements.
1. What LTV Measures (Loan-to-Value) #
LTV compares the loan amount to the property’s current value. It shows the lender how much equity exists in the deal today. LTV can be based on:
- The purchase price
- The as-is appraised value
- A reduced internal valuation, depending on the lender
Example:
If a property is worth $300,000 and the lender allows 75% LTV, the maximum loan is $225,000.
LTV is all about the property’s present condition.
2. What LTC Measures (Loan-to-Cost) #
LTC compares the loan amount to the total cost of the project. This tells the lender how much capital the investor is contributing.
LTC typically includes:
- Purchase price
- Renovation budget
- Occasionally soft or closing costs
Example:
If your total project cost is $250,000 and the lender offers 85% LTC, the maximum loan is $212,500.
LTC focuses on how the entire project is funded.
3. What LTARV Measures (Loan-to-After-Repair Value) #
LTARV is used for value-add or renovation projects. It measures the loan amount against the property’s expected value after improvements.
Lenders use LTARV to evaluate:
- Whether the completed value supports the requested loan
- Whether the renovation scope makes financial sense
- How much leverage is appropriate for the project
Example:
If ARV is $400,000 and the lender offers 70% LTARV, the maximum loan is $280,000.
LTARV focuses on the property’s future value, not its current state.
4. Why Lenders Use All Three Metrics #
Each ratio gives the lender a different perspective:
- LTV shows today’s equity position
- LTC shows how much skin the investor has in the project
- LTARV shows whether the completed project supports the loan amount
For fix and flip projects, all three matter.
Lenders typically use the most conservative number to determine your loan amount.
5. Which Metric Matters Most for Your Deal #
It depends on the type of loan:
- Fix and Flip: LTARV and LTC usually drive the loan size
- Bridge Loans: LTV is the primary metric
- DSCR Loans: Purely LTV-based
- Cash-Out Refinance: LTV only
Knowing which metric applies helps you structure funding and avoid surprises.
6. Common Misunderstandings About LTV, LTC, and LTARV #
Investors sometimes assume:
- A higher ARV means higher leverage
- LTV and LTC measure the same thing
- Renovation cost increases justify higher loan amounts
- Soft costs always count toward LTC
- LTARV allows borrowers to exceed LTV caps
Understanding these differences helps you plan your financing more accurately.
Summary #
LTV, LTC, and LTARV each offer a different view of the deal. LTV looks at the property’s current value. LTC measures the project’s total cost. LTARV evaluates whether the finished value supports the loan amount. When you understand how lenders use these three metrics, it becomes much easier to estimate leverage, plan your budget, and prepare for underwriting. If you want to see how these ratios work across real investment scenarios, AHL’s loan programs provide clear guidelines that can help you evaluate your next opportunity with confidence.