How do ARV and loan-to-cost work together?
Loan-to-cost (LTC) compares the loan with what the project costs; the ARV cap compares it with what the finished property should be worth. Flip lenders commonly advance up to about 85–90% of the purchase and 100% of the rehab, then cap the total loan near 70–75% of ARV. Whichever limit is lower sets your loan.
Some lenders add a third test, a cap on total loan-to-cost, and lend the smallest of the three. Ask every lender for each test in writing, because whichever binds sets your cash to close. The fix-and-flip program page covers the rest of the loan.
ARV, LTC and LTV in plain English
| Term | Formula | What it tells the lender |
|---|---|---|
| After-repair value (ARV) | Appraised value “subject to” the planned work | What the property should be worth when finished |
| Loan-to-cost (LTC) | Total loan ÷ (purchase price + rehab budget) | How much of the project the lender is paying for |
| Loan-to-ARV (LTARV) | Total loan ÷ ARV | The lender’s cushion if it has to sell the finished house |
| As-is LTV | Initial advance ÷ current (as-is) value | Exposure on day one, before any work is done |
Many lenders base the purchase advance on the lower of the contract price or the as-is appraised value. If you are buying below market, that helps; if the appraiser thinks you overpaid, the advance shrinks and your down payment rises.
How is ARV determined?
ARV is usually set by an appraisal or broker valuation that reviews your scope of work and comparable renovated sales nearby. The appraiser values the property “subject to” completion of the plan you submit, so a vague budget produces a cautious number. To support ARV:
- Submit a line-item scope that matches the finish level of your comps.
- Use closed sales of renovated homes, not list prices, in the same neighborhood and size range.
- Do not count on improvements the market does not pay for, such as luxury finishes in an entry-level area.
ARV is an estimate, not a sale price. Lenders cap the loan well below it to absorb selling costs, overruns and market moves.
Example 1: the cost-based limit binds
Purchase $300,000, rehab $80,000, ARV $520,000. The lender offers 90% of purchase, 100% of rehab and a 70% ARV cap. Illustrative assumptions, not a quote.
| Purchase advance: 90% × $300,000 | $270,000 |
| Rehab holdback: 100% × $80,000 | $80,000 |
| Cost-based limit | $350,000 |
| ARV limit: 70% × $520,000 | $364,000 |
| Maximum loan (lower of the two) | $350,000 |
| Loan-to-cost: $350,000 ÷ $380,000 | 92.1% |
| Loan-to-ARV: $350,000 ÷ $520,000 | 67.3% |
| Down payment: $300,000 − $270,000 | $30,000 |
The ARV leaves $14,000 of room, so the cost-based percentages decide the loan. Your cash is the $30,000 down payment plus points, closing and carrying costs.
Example 2: the ARV cap binds
Same purchase and ARV, but the scope grows to a $120,000 rehab.
| Purchase advance: 90% × $300,000 | $270,000 |
| Rehab holdback: 100% × $120,000 | $120,000 |
| Cost-based limit | $390,000 |
| ARV limit: 70% × $520,000 | $364,000 |
| Maximum loan (lower of the two) | $364,000 |
| Shortfall you fund: $390,000 − $364,000 | $26,000 |
| Your project equity: $30,000 + $26,000 | $56,000 |
| Loan-to-cost: $364,000 ÷ $420,000 | 86.7% |
A bigger budget did not raise the loan, because the ARV cap stopped it. Lenders handle the $26,000 gap differently: many cut the purchase advance so you bring it at closing, while others reduce the rehab holdback so you pay for some work yourself. Ask which method applies, because it changes when the cash is due.
Example 3: a total loan-to-cost cap
Go back to Example 1, but the lender also caps the total loan at 85% of total cost.
| Cost-based limit (90% purchase + 100% rehab) | $350,000 |
| ARV limit: 70% × $520,000 | $364,000 |
| Total LTC cap: 85% × $380,000 | $323,000 |
| Maximum loan (lowest of the three) | $323,000 |
| Extra cash versus Example 1: $350,000 − $323,000 | $27,000 |
“90% of purchase and 100% of rehab” sounds better than it is when a total-LTC cap sits behind it. Always ask for every sizing test.
The “70% rule” is an investor rule of thumb, not a loan rule
Many flippers screen deals with the 70% rule: pay no more than 70% of ARV minus repairs. It is a quick filter for margin, not a lender requirement.
| ARV × 70%: $520,000 × 70% | $364,000 |
| Less rehab budget | −$80,000 |
| Maximum offer under the 70% rule | $284,000 |
In Example 1 the $300,000 price is above that screen, which is a signal to check the margin carefully, not a rule that the lender applies.
Deal margin check for Example 1
Lenders care about margin because it is their cushion too. Using 2 points on the $350,000 loan, $6,000 of other closing costs, illustrative selling costs of 8% and an illustrative $4,000 a month of carrying costs (interest, taxes, insurance, utilities) for six months:
| Projected sale price (ARV) | $520,000 |
| Less selling costs: 8% × $520,000 | −$41,600 |
| Less purchase price | −$300,000 |
| Less rehab | −$80,000 |
| Less points and closing: $7,000 + $6,000 | −$13,000 |
| Less carrying costs: 6 × $4,000 | −$24,000 |
| Projected profit before tax | $61,400 |
Run the same check at a lower ARV and a longer hold. If the deal only works at the top of the comps and the shortest timeline, the draw schedule and any delay will squeeze it fast. First flip? See how leverage changes for first-timers.
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Tell Us About Your Deal →ARV and loan-to-cost: frequently asked questions
What is a good loan-to-cost for a fix and flip?
There is no single standard. Commonly, lenders fund up to about 85–90% of the purchase and up to 100% of the rehab, which can put total LTC near 90% on a cost-bound deal, but the ARV cap or a total-LTC cap often brings it lower. First-time flippers usually see less.
What is the difference between LTC and LTV on a flip loan?
LTC divides the loan by the project cost (purchase price plus rehab budget). LTV usually divides it by a value, either the current as-is value or the after-repair value. Flip lenders commonly use both and lend the lower result.
What ARV percentage do lenders lend?
The total loan is commonly capped around 70–75% of after-repair value. The cap leaves room for selling costs, overruns and market changes. It varies by lender, experience and market.
What happens if the ARV appraisal comes in low?
The ARV limit falls and, if it becomes the lower test, the loan shrinks. You either bring more cash, reduce the scope or renegotiate the price. In this guide’s stress test, a $60,000 lower ARV cut the loan by $28,000.
Is the 70% rule a lender requirement?
No. It is an investor rule of thumb for screening deals: pay no more than 70% of ARV minus repairs. Lenders apply their own purchase, rehab and ARV percentages instead.
Do lenders use the purchase price or the as-is value?
Many base the purchase advance on the lower of the contract price and the as-is appraised value. If the appraisal comes in under the price, your down payment rises.
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Tell Us About Your Deal →Sources and review notes
Business-purpose treatment of credit to buy or improve non-owner-occupied property: CFPB, Regulation Z, 12 CFR 1026.3(a) and its official interpretation. Percentages and fees in the examples are illustrative and describe commonly published private business-purpose lending terms as of October 2026, not one lender’s guidelines. All arithmetic was checked line by line.
Educational information only, not an offer, approval or financial, tax or legal advice. LoanFight is not a direct lender and does not set final loan terms. Equal Housing Opportunity.