Private money and bridge lenders size renovation loans using a dual-constraint formula: they calculate both a maximum Loan-to-Cost (LTC) based on your purchase price plus rehab budget and a maximum Loan-to-After-Repair Value (LTARV) based on the appraiser's post-renovation valuation, then cap your total loan at the lesser of those two figures.
What Is the Difference Between LTV, LTC, and LTARV?
When you apply for a stabilized rental mortgage, the lender looks at a single valuation metric: Loan-to-Value (LTV) based on the property's current condition. Transitional properties, fix-and-flip acquisitions, and heavy BRRRR deals have two different values—what the distressed structure is worth today ("As-Is") and what it will be worth once your contractor finishes the scope of work ("After-Repair Value" or ARV).
To manage both borrower skin-in-the-game and collateral margin, institutional private money lenders evaluate three ratios simultaneously:
- As-Is LTV (Initial Advance Ratio): The percentage of the purchase price (or current As-Is appraised value, whichever is lower) funded at the closing table. Across typical market ranges, private money lenders advance 75% to 90% of the purchase price depending on borrower track record and credit tier.
- Loan-to-Cost (Total LTC): Your initial purchase loan advance plus 100% of the rehab holdback divided by total project cost (Purchase Price + Rehab Budget). Typical total LTC ceilings range from 80% to 90% of total cost.
- Loan-to-After-Repair Value (LTARV): Your total loan amount (initial purchase advance + rehab holdback) divided by the appraiser's projected post-renovation value. Typical LTARV ceilings sit between 65% and 75% of ARV.
The Lesser-Of Rule: Every wholesale private money term sheet includes the phrase *"Total loan not to exceed X% LTC or Y% of ARV, whichever is less."* Even if a program advertises up to 85% or 90% LTC, the 70%–75% LTARV ceiling will cap your loan if your purchase price plus rehab budget is too close to the post-renovation value.
How Do Borrower Experience Tiers Move LTC and LTARV Caps?
Wholesale private money matrices group investors into experience tiers based on how many verified fix-and-flip exits or ground-up renovations they have completed in the past 36 months:
| Borrower Experience Tier (Past 36 Months) | Typical Initial Purchase Advance | Typical Rehab Holdback Coverage | Typical Max Total LTC | Typical Max LTARV Cap |
|---|---|---|---|---|
| Experienced Operator (5+ Completed Projects) | 85%–90% of Purchase Price | Up to 100% of Rehab Budget | 85%–90% Total LTC | 70%–75% of ARV |
| Intermediate Investor (2–4 Completed Projects) | 80%–85% of Purchase Price | Up to 100% of Rehab Budget | 82.5%–85% Total LTC | 70%–72.5% of ARV |
| First-Time Flipper (0–1 Completed Projects) | 75%–80% of Purchase Price | 85%–100% of Rehab Budget | 75%–82.5% Total LTC | 65%–70% of ARV |
In addition to project experience, credit score floors commonly range from 620 to 680, and lenders verify post-closing liquidity to ensure you can cover your down payment, closing costs, 3 to 6 months of interest payments, and the working capital required to kick off the first stage of construction before your first draw reimbursement arrives.
Worked Math: How LTC vs. LTARV Sizing Plays Out on Two Tampa Deals
Let's walk through two real-world renovation scenarios in Tampa, Florida, assuming an intermediate investor qualifies for a program offering 85% max Purchase LTV, 100% Rehab Holdback, 87.5% max Total LTC, and 70% max LTARV.
Deal 1: Deep Discount Purchase (LTC Is the Binding Constraint)
- Purchase Price: $220,000
- Approved Rehab Budget: $60,000
- Total Project Cost: $280,000 ($220,000 + $60,000)
- Appraised After-Repair Value (ARV): $415,000
Now let's test the lender's dual sizing caps:
- LTC Calculation: 85% of the $220,000 purchase price ($187,000 initial advance) + 100% of the $60,000 rehab budget = $247,000 total loan (which equals 88.2% of cost, trimmed slightly by the 87.5% total LTC ceiling to $245,000).
- LTARV Calculation: 70% of the $415,000 ARV = $290,500 maximum loan.
- Final Loan Sizing: Because $245,000 (LTC cap) is less than $290,500 (LTARV cap), the investor receives the full $245,000 loan ($185,000 at closing plus a $60,000 construction holdback) and brings $35,000 of project equity plus closing costs to the table.
Deal 2: Tighter Spread Purchase (LTARV Cuts the Loan Back)
Suppose the same investor pays more upfront for a similar bungalow on the next block:
- Purchase Price: $265,000
- Approved Rehab Budget: $65,000
- Total Project Cost: $330,000
- Appraised After-Repair Value (ARV): $415,000
Let's run the same two formulas:
- Uncapped LTC Calculation: 87.5% of the $330,000 total cost would equal $288,750.
- 70% LTARV Ceiling: 70% of the $415,000 ARV equals $290,500—Wait: if the lender happens to enforce a 65% LTARV cap (or if the appraiser brings ARV in at $395,000 instead of $415,000), 70% of $395,000 equals $276,500.
- Impact of an ARV Haircut ($395,000 ARV at 70% LTARV = $276,500 Max Loan): Because the $65,000 rehab holdback must remain fully funded in escrow so the house can be completed, the lender deducts the $65,000 holdback from the $276,500 LTARV cap, leaving $211,500 for the Day-One Purchase Advance (79.8% of purchase price instead of 85%). The investor must bring an extra $12,250 to closing to bridge the ARV cap!
What Happens When Rehab Scope Exceeds Purchase Price ("Heavy Rehab")?
If your renovation budget exceeds 50% of the purchase price—or exceeds 100% of the initial purchase price on a major structural addition—many wholesale lenders reclassify the file as a Heavy Rehab deal. Heavy rehab overlays typically reduce the maximum LTARV cap by 5% (for example, from 70% of ARV down to 65% of ARV), require a licensed general contractor with general liability insurance, and mandate an independent feasibility review of your line-item budget.
To see how your escrowed renovation funds are released once work starts, read our step-by-step guide on how rehab holdback draws and inspections work on private money loans, and compare your permanent exit options in short-term private money bridge loans vs 30-year DSCR rental financing.
Model your acquisition, rehab budget, and ARV caps on our loan calculator or contact a Loan Daddy loan specialist to size your next private money bridge loan.