LTV vs. LTC — what lenders mean

LTV and LTC are the two ratios that quietly determine how much of your deal a lender will fund. Confusing them is one of the most common — and expensive — mistakes new investors make.

LTV — loan-to-value

LTV compares the loan amount to the property's value. On a rental, "value" is the current appraised value; on a value-add or construction deal, lenders often use the after-repair value (ARV) or completed value. LTV = Loan ÷ Value. A $210,000 loan on a $300,000 property is 70% LTV.

LTC — loan-to-cost

LTC compares the loan to your total project cost — purchase price plus rehab or construction costs. LTC = Loan ÷ Total Cost. If you buy for $150,000 and budget $50,000 of rehab, your cost is $200,000; a $180,000 loan is 90% LTC.

Why lenders use both

On value-add and construction deals, lenders cap the loan by both ratios and advance the lower dollar amount. This protects them from over-lending on either an inflated cost or an optimistic value.

• LTC caps how much of your spend they will fund (e.g. up to 90% of cost)
• LTV/ARV caps the loan against the finished value (e.g. up to 70% of ARV)
• The lower of the two dollar figures is what you actually get

Frequently asked questions