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If you're planning to invest in real estate and considering a loan, understanding two key terms—Loan-to-Value (LTV) and After-Repair Value (ARV)—can make or break your financing strategy. These aren't just technical acronyms; they are essential measures that lenders use to assess your deal, determine your loan amount, and decide your loan terms. At Certain Lending, we work with a wide range of real estate investors—from first-time flippers to experienced landlords—and helping you understand how LTV and ARV work is one of the most important steps in securing smart, efficient financing.
Let’s break down what these terms mean, how they’re calculated, and why they matter to your bottom line.
What Is Loan-to-Value (LTV)?
LTV, or Loan-to-Value, is a ratio that measures the amount of the loan compared to the current value of the property. It's calculated by dividing the loan amount by the property’s purchase price or appraised value. For example, if you're buying a property worth $500,000 and requesting a loan of $400,000, your LTV would be 80%.
This number tells the lender how much equity you’re contributing to the deal. A higher LTV means you’re borrowing more relative to the property’s value, which generally increases the lender’s risk. On the flip side, a lower LTV indicates more borrower equity and lowers the risk, often resulting in better interest rates, faster approvals, and more favorable terms.
Lenders typically have benchmarks for acceptable LTV ratios. A loan at 60% LTV is considered very low risk. Most rental or bridge loans fall within the 70–75% LTV range. When LTV approaches 80–90%, the deal may still work, but lenders may require higher pricing, additional documentation, or added collateral. Understanding your LTV helps you better plan your down payment and know what kind of loan options are available to you.
What Is After-Repair Value (ARV)?
After-Repair Value, or ARV, refers to the estimated value of a property after all planned renovations and improvements have been completed. This metric is especially important for borrowers who are using short-term financing to acquire and improve a property—such as fix-and-flip investors or developers working on gut renovations or ground-up construction.
For example, imagine you purchase a property for $300,000 and plan to spend $100,000 on renovations. After repairs, you believe the property will be worth $500,000. That $500,000 figure is your ARV. Many lenders, especially those offering fix-and-flip loans, base your loan amount not just on the purchase price but on the ARV—often offering 65–75% of the projected post-renovation value. In this case, if a lender offers 70% of ARV, you'd qualify for up to $350,000.
Determining ARV isn’t as simple as picking a number. Lenders typically require a combination of comparable sales (also known as comps), contractor estimates, scopes of work, and even third-party appraisals to validate the figure. Your ARV must be grounded in reality and supported by data, or the lender won’t accept it.
LTV vs ARV: What's the Difference?
While both LTV and ARV are ratios that impact your loan size, they measure two very different things. LTV is based on the current value of the property, either from the purchase price or an appraisal, while ARV is based on the expected future value of the property after improvements. These are not interchangeable terms, and mixing them up can lead to misunderstandings about how much you can borrow.
In most rental or bridge loan situations, lenders underwrite based on LTV. These are properties that are either turnkey or already income-generating, so there’s no future value to estimate. On the other hand, ARV is used for projects that involve renovations, where the borrower is actively creating value.
One common mistake borrowers make is assuming they can borrow 70% of ARV on a rental loan or misunderstanding the difference between purchase price and future value. In reality, a lender may have two caps: one on LTV and one on ARV. For example, they may offer “the lesser of 75% of current value or 70% of ARV.” Understanding which metric your loan is based on is crucial before structuring your deal.
Real-World Examples
Let’s look at two real-world examples that show how LTV and ARV work in practice.
In the first case, you’re buying a turnkey rental property for $600,000 and requesting a loan of $420,000. Since the property is in livable condition and will be rented out as-is, the lender underwrites based on LTV. Your loan request equals 70% LTV, which is right in the sweet spot for most lenders.
In the second example, you’re purchasing a property for $400,000 and plan to invest $100,000 in renovations. You expect the finished home to be worth $600,000. Based on that ARV, a lender offering 70% of ARV would approve up to $420,000 in total financing. This may cover the majority of the purchase price and all of the renovation budget. In this case, the lender is focused on the future value you’re creating—not just what the property is worth today.
How These Ratios Impact Your Loan Terms
Your LTV or ARV ratio directly influences how much you can borrow, the structure of your loan, and what terms are available. A lower LTV typically means more favorable interest rates and less risk for both you and the lender. On the other hand, a high ARV can unlock more leverage, especially if your renovation plan is well-documented and realistic.
However, higher leverage almost always comes with stricter requirements. If your loan is based on ARV, you may need to submit a detailed renovation budget, contractor bids, timelines, and comparable sales to prove the value you're projecting. Lenders will also require a clear and credible exit strategy, whether that’s selling the property, refinancing into a rental loan, or paying off the loan with other funds.
The more data you bring to the table—and the more conservative your projections—the better your chances of getting approved on strong terms.
How to Strengthen Your Loan Application
If you want to maximize your chances of loan approval and get the best possible terms, there are a few things you can do to strengthen your loan package.
First, prepare realistic comps and sales data to justify your ARV. Don’t rely solely on your own gut instinct—show proof of nearby, similar properties that have recently sold at or near your projected value. Second, create a detailed, itemized renovation budget. Break down each major category (plumbing, electrical, HVAC, etc.) and get bids from licensed contractors when possible.
Third, include a clear exit plan. Will you sell the property once renovations are complete? Will you refinance into a rental loan? Lenders want to know how and when they’ll be repaid. If you have prior experience with similar projects, include photos, outcomes, and lessons learned.
Finally, avoid common pitfalls like inflating your ARV or underestimating renovation costs. These red flags can quickly reduce a lender’s confidence in your project, even if your numbers technically check out.
Conclusion
Whether you’re applying for a fix-and-flip loan or financing a long-term rental, understanding LTV and ARV is crucial. These two numbers play a central role in how lenders evaluate your deal and structure your loan. LTV tells the lender how much skin you have in the game right now. ARV gives them a window into the value you’re creating — but only if it’s realistic and well-documented.
At Certain Lending, we help borrowers navigate this process with clarity and confidence. If you're unsure how your deal stacks up, or want to know how much you could borrow based on your LTV or ARV, our team is here to help.
Ready to take the next step?
Reach out today and talk to a Certain Lending advisor. We'll help you understand your numbers, compare options, and get one step closer to funding your next great real estate project.
