Guides · Underwriting · 6 min read
After-repair value and loan-to-cost explained with a worked example — how lenders apply both limits, why the lower one wins, and how to defend your ARV.
ARV — after-repair value — is what the property will appraise for once your renovation is complete. Not what you hope it lists for: what the evidence of sold, comparable properties says it is worth finished.
LTC — loan-to-cost — is the loan as a percentage of your total project cost: purchase price plus the renovation budget. It measures how much of your own cash is in the deal.
Lenders apply both limits, and the loan is sized by whichever produces the smaller number. LTC guarantees you have skin in the game; the ARV cap guarantees the finished value protects everyone if plans change.
Say a lender's box is 85% of cost and 70% of ARV, and your deal is:
| Test | Arithmetic | Maximum loan |
|---|---|---|
| 85% of cost | 380,000 × 0.85 | 323,000 |
| 70% of ARV | 520,000 × 0.70 | 364,000 |
| Loan is sized by the lower | 323,000 |
Here cost is the binding limit: the loan is 323,000, you bring roughly 57,000 plus closing costs, and the renovation budget sits in a holdback released through draws. Change the numbers — a weaker ARV of 440,000 drops the ARV test to 308,000, and that becomes the loan. This is why inflating the renovation budget never helps: it raises cost, not value, and the ARV cap catches it.
The margin between total cost and ARV is not the lender being difficult — it is your profit and your cushion. Projects that only work at maximum leverage are the projects that fail when the budget slips ten percent or the market softens one season. The all-in economics — including what the financing itself costs — are covered in the private money vs. bank comparison; the full loan mechanics are in the fix-and-flip guide.
Send the address, purchase price, renovation budget, and after-repair value — you will get a straight answer and a written pricing sheet, not a maybe.
Request FinancingA common screen is the 70-75% test: purchase price plus renovation budget should land near or below three-quarters of the after-repair value. Deals that pencil only at 90% of ARV have no room for surprises — and renovation projects always have surprises.
You propose it; the lender verifies it with an appraisal or a comparable-sales analysis. Bring sold comps — similar size, condition, and street, sold recently — not active listings. Listings are asking prices; comps are evidence.
Because two limits apply at once — a percentage of cost and a percentage of ARV — and the loan is sized to the lower of the two. Advertised maximums describe the best case, not every case; conservative values or thin margins pull the number down.
What a real estate bridge loan is, when investors use one, how it differs from a fix-and-flip loan, and how to…
A practical pre-application checklist for first-time fix-and-flip investors — entity, deal file, budget, value…
What a fix-and-flip loan covers, how lenders size it against purchase price and ARV, what it costs, and what M…