LTV vs LTC: what is the difference?
Two ways a lender caps a loan, why a flip has both, and which one usually decides.
Biscayne Lending 3 blog.minRead
Two acronyms, two different questions, and on a renovation deal both apply at once. Getting them straight is the difference between knowing your cash requirement and being surprised by it.
LTV — loan to value
The loan divided by the property's value.
A property worth $400,000 with a $300,000 loan is at 75% LTV.
The question it answers: if this goes wrong and we sell it, is there enough value to cover us?
On a renovation deal the relevant value is usually the after-repair value — what it will be worth finished — and the ratio is often called ARV LTV.
LTC — loan to cost
The loan divided by what the project actually costs you.
Purchase $250,000 plus a $60,000 renovation is a total cost of $310,000. A $279,000 loan is at 90% LTC.
The question it answers: how much of your own money is in this?
Why a flip has both
A fix-and-flip lender typically sets two caps and lends the lower of the two.
Take a purchase at $250,000, a rehab budget of $60,000, and an after-repair value of $500,000.
- 90% of cost: 90% × $310,000 = $279,000
- 75% of ARV: 75% × $500,000 = $375,000
The lower cap decides: $279,000. Your cash in is $310,000 − $279,000 = $31,000, plus closing costs, carrying costs and reserves.
Now change one number. If the ARV is really $340,000 rather than $500,000:
- 90% of cost = $279,000
- 75% of ARV = $255,000
Now the ARV cap binds, and you need $55,000 rather than $31,000. Same purchase, same budget — a different appraisal, and $24,000 more of your money.
Which one usually binds?
On a deal with a genuinely good margin, the cost cap binds and the ARV cap has room. When the ARV cap binds instead, it is usually telling you something: the purchase price is high for the finished value, or the renovation budget is not adding what you hoped.
That is worth hearing. The ratio that binds is a fact about your deal, not an obstacle from the lender.
The related ones
| Term | What it divides | Where you meet it |
|---|---|---|
| LTV | Loan ÷ value | Almost every loan |
| ARV LTV | Loan ÷ after-repair value | Fix and flip, rehab |
| LTC | Loan ÷ total project cost | Renovation, construction |
| CLTV | All loans ÷ value | Second mortgages, HELOCs |
The practical habit
Before you offer on a renovation deal, run both caps with conservative numbers and take the lower one. If the answer needs more cash than you have, you have learned that at the offer stage rather than a week before closing.
What would change the answer
The percentages in the worked examples above are illustrative, not quotes. Caps vary by lender, by borrower experience, by market and by property. What does not vary is the arithmetic — and you can run it yourself before anyone asks you for a document.
If you want the caps the lenders on our desk actually publish, they are on the rates page, each one cited to the lender it came from.
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