Glossary
LTV (loan to value)
LTV, or loan to value, is the loan amount divided by the property's appraised value. A 75% LTV loan on a $280,000 home is $210,000.
LTV is the main limit on most real estate loans. For investors it shows up twice: as a cap on rehab loans (loan to ARV) and as the main sizing rule on a refi.
How to calculate it
LTV = loan / value, and the max loan is value x LTV limit.
Loan to ARV on a hard money loan
Hard money lenders often cap the loan at a percent of ARV, sometimes called LTARV. Run The Deal's default is 75%. When the deal is thin, this cap binds before LTC.
- Purchase / rehab / ARV
- $220,000 / $70,000 / $330,000
- 90% of purchase + 100% of rehab
- $198,000 + $70,000 = $268,000
- Cap at 75% of ARV
- $247,500
- Loan (the lower amount)
- $247,500
LTV on a refi
On a cash-out refi, the new loan is the appraised value times the program's LTV limit, often 75% for a 1-unit rental and 70% for 2 to 4 units. Rate and term refis may allow more. Limits vary by lender and program.
What to watch
- The appraisal sets the value, not your ARV. A 10% low appraisal cuts the loan by 10%.
- Early in ownership, some lenders use the lower of the appraisal or your cost. See seasoning.
- Lower credit scores or no rental history can lower the LTV limit.
Questions
What LTV can I get on a cash-out refi of a rental?
75% is a common limit for a 1-unit investment property and 70% for 2 to 4 units, but it varies by lender, program, credit and rent coverage. Treat it as illustrative.
What is the difference between LTV and LTC?
LTV divides the loan by the value. LTC divides it by your cost. Rehab lenders often use both and lend the lower amount.
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