Hard Money Loan to Value
Hard‑Money Loan‑to‑Value (LTV): Ratios, Programs, and What Investors Need to Know
Loan‑to‑value (LTV) for hard money loans shows the loan amount as a percentage of the collateral property’s value. For active real estate investors who rely on fast, equity‑driven financing, LTV is one of the first numbers underwriters check. This guide walks through how LTV is calculated, why lenders focus on equity and ARV (after‑repair value), and how LTV shapes product choice—fix‑and‑flip financing, bridge loans, cash‑out refinances, and foreclosure bailouts. You’ll find step‑by‑step LTV math, program‑specific caps, examples that illustrate pricing and repayment effects, and when Loan‑to‑Cost (LTC) is the better metric. Throughout, the emphasis stays practical—speed, leverage, and documentation—plus a brief look at how Fidelity Funding evaluates equity and ARV for quicker approvals.
What Is Hard Money Loan to Value and How Is It Calculated?
Hard‑money LTV measures lender exposure by dividing the planned loan amount by the chosen property value and expressing the result as a percentage. Depending on the product, the denominator can be current market value, purchase price, or ARV; the numerator is the total loan proceeds, including purchase and rehab funds. Because LTV ties directly to borrower leverage and lender risk, accurate valuations (appraisal, BPO, or comparable sales) are essential. Understanding the calculation helps investors compare private‑money offers and pick the program that matches their exit strategy.
How Do You Calculate the Hard Money LTV Ratio?
Calculating hard‑money LTV is straightforward: Loan Amount ÷ Property Value (or ARV) = LTV percentage. For example, a $300,000 loan on a $500,000 purchase equals 60% LTV (300,000 ÷ 500,000 = 0.60). For a rehab, a $400,000 loan against a $700,000 ARV is about 57% LTV (400,000 ÷ 700,000 = 0.57). Always confirm which value the lender uses—purchase price, appraisal, or ARV—because the same numbers can produce very different loan sizes and risk profiles.
Why Is LTV Important in Hard Money Lending?
LTV is the primary risk metric hard‑money lenders use to size loans, set pricing, and determine allowable lien position. Higher LTV raises lender exposure and usually increases rates or tightens term options. From the borrower side, LTV dictates leverage, required down payment, and the margin for market or rehab cost swings. Because hard‑money underwriters rely heavily on property equity and ARV, conservative valuations and realistic comps reduce underwriting friction. Knowing how LTV drives pricing and approval helps borrowers structure offers and exits that meet lender expectations—and close fast.
Below we explain how Fidelity Funding applies LTV and ARV within a fast, equity‑focused underwriting process.
What Are Fidelity Funding’s LTV Guidelines for Different Hard Money Loan Programs?
Here we translate common LTV rules into program‑specific guidance tied to Fidelity Funding’s investor products. These examples show typical caps and special conditions for purchases, rehabs, commercial deals, bailouts, and land or construction loans. Fidelity Funding prioritizes property equity and ARV and offers flexible approval paths for experienced investors and business‑purpose borrowers who provide clear documentation. The table below helps you quickly identify the program that fits your deal and which documents will matter most.
| Loan Program | Max LTV / Conditions | Notes |
|---|---|---|
| Fix & Flip (purchase + rehab) | Up to 90% purchase; rehab financed to 100% of documented rehab budget (ARV‑driven) | Purchase funding often combined with rehab draws; ARV underwriting required |
| Purchase Loans (non‑rehab) | Up to 70–75% case‑by‑case | First‑position purchases based on appraised value or BPO |
| Bridge Loans (short‑term) | Typically 60–75% depending on exit plan | Short terms with emphasis on clear exit or sale |
| Cash‑Out Refinance & Bailouts | More conservative, commonly ≤65% for cash‑out; bailouts prioritized for speed | Documentation: title, payoff statements; urgent timelines considered |
| Land & Construction | Lower LTV for raw land; construction uses LTC/draw schedule | Construction often evaluated on LTC with staged disbursements |
| Commercial Hard Money | Generally lower LTV (case‑by‑case) and DSCR considered | Income and occupancy influence allowable LTV |
Program purpose determines both the value used in the denominator (ARV vs. current value) and acceptable caps. Fidelity Funding’s focus on equity and ARV enables quicker approvals when deal documentation is complete.
What LTV Ratios Apply to Fix and Flip Loans?
Fix‑and‑flip LTV typically separates purchase leverage from rehab financing: lenders may provide high purchase leverage—sometimes up to 90%—while sizing rehab funds against ARV to ensure the project is viable. In practice, a lender can pair a high‑percentage purchase loan with a rehab budget financed through draws tied to inspections and milestones. Because ARV drives the rehab portion, conservative comps, contractor bids, and contingency reserves are critical; overstated ARV reduces available funding and increases required borrower equity. Understanding this split helps investors maximize leverage without surprising the lender.
How Does LTV Vary for Commercial and Bridge Loans?
Commercial and bridge LTV bands are generally lower than residential fix‑and‑flip caps since income risk and asset complexity increase lender exposure. Expect LTVs commonly in the 60–75% range depending on property type and exit certainty. Commercial underwriting also factors DSCR, occupancy, and lease quality when sizing loans. Bridge loans—designed to cover short‑term gaps—are underwritten against a clear exit, so lenders set LTVs that reflect that exit plan. Document cash flow projections and exit timelines to maximize allowable LTV on these deals.
What Are LTV Limits for Cash‑Out Refinance and Foreclosure Bailout Loans?
Cash‑out refinances and foreclosure bailouts are handled conservatively: lenders often set lower LTV limits to protect against distressed collateral and title issues, frequently capping cash‑out at or below standard purchase LTVs. In urgent bailouts, speed is prioritized, but lenders still require clear title and payoff statements before raising LTV exposure. When title is clean and payoffs are verified, underwriters can accelerate closings without materially increasing LTV. Investors seeking rescue funding should prepare accurate payoff figures and basic valuation evidence to speed approval.
How Is LTV Determined for Land and Construction Loans?
Unimproved land typically carries lower LTV limits because the parcel lacks immediate income and is harder to liquidate. Construction loans are usually underwritten on Loan‑to‑Cost (LTC) with staged draws tied to work completed, though permanent LTV after stabilization matters for exit financing. Construction underwriting emphasizes detailed budgets, contractor agreements, and realistic timelines; lenders use LTC during the build phase and LTV/ARV expectations when sizing permanent or exit financing. Plan your exit and permanent lending strategy when negotiating construction LTV/LTC metrics.
How Does Loan‑to‑Value Impact Hard Money Loan Terms and Interest Rates?
LTV directly influences price and structure: higher LTV increases lender risk and typically leads to higher interest rates, shorter terms, or tighter covenants, while lower LTV can deliver better pricing and longer options. Lien position (first vs. second) also affects pricing—second‑position loans generally carry materially higher rates at similar LTVs. The table below maps common LTV bands to typical interest‑rate ranges, term lengths, and loan positions so you can see how leverage impacts cost and structure.
| LTV Band | Typical Interest Rate / Term / Position | Value |
|---|---|---|
| ≤ 60% | Lower rate band; longer terms (12–36 months) often available; first position preferred | Lower lender risk, better pricing |
| 61–75% | Mid‑rate band; typical short‑to‑medium terms (6–24 months); first position common | Balanced leverage and pricing |
| > 75% | Higher rate band; short terms (3–12 months); often case‑by‑case or second positions | Higher cost and tighter covenants |
Because LTV increases often cause step changes in cost and term rather than gradual shifts, borrowers can sometimes improve economics with modest equity injections that move a deal into a lower band.
How Do Higher or Lower LTV Ratios Affect Interest Rates?
Higher LTV raises lender exposure and usually pushes loans into higher interest‑rate bands; lower LTV reduces perceived risk and can qualify borrowers for more favorable pricing. Second‑lien positions carry a premium at any LTV because subordinate liens have lower recovery priority. Credit profile, exit clarity, and property condition are secondary factors that can move a file within a rate band. Model scenarios to see how a small drop in LTV—say by adding equity—can reduce carrying costs meaningfully.
What Loan Terms and Repayment Structures Are Influenced by LTV?
LTV helps determine whether lenders offer interest‑only payments, amortizing schedules, or short balloons, and it shapes rehab draw schedules and reserve covenants. Higher LTVs commonly pair with interest‑only payments and short balloon maturities to limit lender term exposure, while lower LTVs can support longer amortization or renewals. Draw‑controlled rehab disbursements are standard for ARV‑based loans—progress inspections release funds and protect LTV assumptions. Negotiate draw and repayment terms that align with your project timeline and exit plan.
What Is the Difference Between Loan‑to‑Value and Loan‑to‑Cost in Hard Money Loans?
Loan‑to‑Value (LTV) compares loan amount to property value or ARV and is most useful for purchase and refinance sizing. Loan‑to‑Cost (LTC) compares loan amount to total project cost and is the primary control for construction and major rehab underwriting. LTV gauges collateral recovery potential and market risk; LTC manages project cost control and overrun risk. Lenders commonly use both: LTC to manage draw risk during construction, and LTV/ARV to cap long‑term exposure after rehab or stabilization. Presenting the right metric for each stage speeds underwriting.
| Metric | Used For | Example |
|---|---|---|
| Loan‑to‑Value (LTV) | Purchase and refinance sizing, ARV‑based rehab caps | Loan $300k ÷ ARV $600k = 50% LTV |
| Loan‑to‑Cost (LTC) | Construction and rehab budget control, draw schedules | Loan $400k ÷ Total Cost $500k = 80% LTC |
| Combined Use | Complex projects requiring both cost control and exit valuation | LTC for build phase, LTV/ARV for permanent exit sizing |
In short: LTC limits funding against cost exposure during construction; LTV limits long‑term collateral exposure after completion.
When Should Investors Use LTV Versus LTC?
Use LTV when sizing purchase or refinance loans and when exit value is the primary concern. Use LTC when lenders need tight control over construction or rehab costs and staging. For ground‑up builds, LTC dominates during construction; LTV becomes central when seeking permanent financing or exit refinancing. In rehab deals where ARV drives returns, present both metrics so lenders can manage interim draw risk and eventual collateral exposure.
How Do LTV and LTC Affect Risk Assessment and Loan Approval?
Lenders use LTC to control disbursements during construction and LTV to cap long‑term exposure; combined thresholds reduce the chance of cost overruns and value shortfalls. A low LTC with an optimistic ARV may still face conservative adjustments, while a low LTV but weak cost controls can delay or withhold draws. Documentation differs by metric—detailed budgets and contractor bids for LTC versus appraisals and comps for LTV—so provide the right evidence to support each number. Conservative assumptions aligned across both metrics speed approvals and improve pricing.
What Are Common Questions About Hard Money LTV for Real Estate Investors?
This FAQ section answers typical investor questions with direct, actionable guidance on acceptable LTV bands, the role of credit, closing speed expectations, and how ARV affects rehab funding. Answers use numeric ranges and practical document steps drawn from common hard‑money practice so you can quickly assess deal viability. At the end we outline simple next steps for time‑sensitive borrowers.
What Is a Good LTV Ratio for Hard Money Loans?
“Good” depends on the program. Many hard‑money purchase and refinance loans are comfortable in the 60–75% range, while fix‑and‑flip ARV‑backed financing can allow higher purchase leverage with rehab funding layered in. Lower LTVs reduce rates and underwriting friction; higher LTVs may be approved case‑by‑case with higher pricing or extra covenants. Often adding modest equity to drop LTV a few points materially improves financing costs and deal economics. Present conservative comps and a clear exit to reduce underwriting pushback.
Do Hard Money Lenders Consider Credit Scores or Only Property Equity?
Hard‑money lenders prioritize property equity and ARV over traditional credit metrics, but borrower credit and track record still matter—especially in borderline files. Many private lenders underwrite by collateral first, but thin credit or limited experience can lead to higher rates or additional reserves. Demonstrating relevant project experience, a clear business purpose, and organized documentation (contractor bids, exit plan) helps shift the focus to the asset and speeds approval.
How Quickly Can Loans Close Based on LTV and Property Type?
Closing speed depends on valuation needs, title condition, and document readiness. Straightforward transactions with clear title and a purchase contract can close in 5–7 days; streamlined pre‑approved files may get an initial decision in 24–48 hours. Appraisals, complex commercial underwriting, or title issues extend timelines; ARV‑based rehab files require contractor bids and scopes that add time. To accelerate closing, provide clean title reports, complete contractor estimates, proof of funds, and a concise exit plan. Lenders that emphasize speed will trade conventional income verification for clear equity and documentation.
How Does After‑Repair Value Influence Fix and Flip LTV?
ARV is the critical denominator for rehab‑backed lending: underwriters use ARV to size total project exposure and ensure post‑rehab proceeds cover debt and investor return. An overstated ARV reduces available financing or triggers higher reserve requirements, so lenders insist on conservative comps and verifiable contractor budgets. For example, purchase $300k + rehab $100k with ARV $550k yields a different allowable loan than the same numbers with an ARV of $650k. Conservative ARV estimates and detailed rehab plans increase lender confidence and available ARV‑based funding.
Next steps for time‑sensitive borrowers: submit a deal package, call underwriting, or complete the lender form with valuation and payoff details to start the approval process. These actions speed evaluation but do not guarantee funding.
How Can Investors Calculate and Maximize Their Hard Money Loan to Value Ratio?
This checklist highlights the core documents and steps that produce an accurate LTV calculation and improve negotiation leverage with lenders.
- Obtain a professional appraisal or BPO: Use formal valuations to establish the denominator for LTV or ARV.
- Compile contractor bids and a detailed rehab budget: Lenders use these to underwrite rehab financing and draw schedules.
- Provide clear title and payoff documentation: Clean title accelerates closing and prevents LTV adjustments due to liens.
- Prepare proof of funds for down payment or reserves: Demonstrating equity reduces perceived risk and can improve pricing.
Presenting a complete packet gives lenders the clarity they need to underwrite quickly; when title is clear and valuation is straightforward, approvals can move from hours to days.
What Steps Help Calculate Your Property’s LTV Accurately?
Accurate LTV starts with selecting the correct value basis (purchase price, appraisal, or ARV), listing all loan proceeds and planned rehab draws, and reconciling comps to support ARV claims. Begin with a BPO or appraisal, then attach contractor bids and contingency items to the rehab budget so lenders can verify draw needs. List existing liens and payoffs so the numerator reflects subordinated debt where applicable. Conservative assumptions and clear documentation reduce surprises and speed approval.
How Can Understanding LTV Improve Your Loan Approval and Terms?
Knowing how LTV affects pricing and covenants lets you structure offers to lower financing costs—small equity increases or conservative ARV assumptions can move a loan into a better rate band. For example, reducing LTV by 5–10% through a modest down payment or negotiated purchase price may avoid second‑lien premiums or secure longer terms. Clear exit plans, conservative comps, and organized budgets signal lower execution risk and typically speed underwriting.
Fidelity Funding works with investors who submit complete deal packages. By focusing on property equity and ARV, we often deliver rapid approvals and closings for qualified business‑purpose borrowers. To pursue a time‑sensitive financing request, gather valuation evidence, contractor estimates, clear title documentation, and an explicit exit plan before submitting a deal or contacting the underwriting team.
- Document readiness accelerates approvals: A complete packet reduces review cycles.
- Conservative ARV and controlled rehab budgets lower pricing: Lenders reward realistic assumptions.
- Clear title and payoff figures enable fast closings: Title issues are the most common delay.
| Action Item | Purpose | Outcome |
|---|---|---|
| Appraisal or BPO | Establishes formal value or ARV | Defensible denominator for LTV |
| Contractor bids & budget | Supports rehab funding and draw schedule | Cleaner rehab financing and lower contingency |
| Title & payoff documentation | Clears encumbrances | Faster closing and more reliable LTV calculation |
Frequently Asked Questions
What factors influence the maximum LTV a borrower can receive?
Maximum LTV depends on program type, property condition, and the borrower’s profile. Fix‑and‑flip loans can allow higher LTVs because renovations increase value, while distressed or complex assets typically get lower caps. Lenders also weigh property equity, local market conditions, and borrower experience—credit remains a secondary but sometimes decisive factor. Understanding these variables helps borrowers position their deals for better terms.
How does the type of property affect LTV ratios?
Property type drives LTV limits because risk varies by asset class. Single‑family residential often supports higher LTVs than commercial properties, which face income variability and complexity. Raw land typically has the lowest LTV because it lacks immediate income and is less liquid. Lenders adjust caps to reflect resale difficulty, income stability, and asset liquidity.
Can LTV ratios change during the loan process?
Yes. LTV can shift if a new appraisal or market changes alter the property value, or if the borrower changes the loan amount or down payment. Updates to title, liens, or rehab scope can also affect the numerator or denominator. Stay proactive during underwriting—clear documentation and timely updates reduce surprises.
What documentation is typically required to support an LTV calculation?
Common documentation includes a professional appraisal or Broker Price Opinion (BPO), contractor bids and a detailed rehab budget for renovation projects, clear title records, and proof of funds for down payments or reserves. Having these documents ready shortens underwriting cycles and improves negotiation leverage.
How can investors improve their LTV ratio before applying for a loan?
Improve LTV by contributing more equity, negotiating a lower purchase price, or presenting conservative ARV estimates and solid project budgets. A larger down payment lowers the loan amount relative to value, producing a better LTV. Organized documentation and realistic assumptions also boost lender confidence and can lead to more favorable terms.
What role does market condition play in determining LTV ratios?
Market conditions affect property values and lender risk appetite. In rising markets, lenders may accept slightly higher LTVs; in declining markets they typically tighten caps to protect against value erosion. Keep an eye on local trends—lenders underwrite to current market signals as well as historical comps.
Conclusion
Mastering hard‑money LTV gives investors a practical edge: it clarifies allowable leverage, helps control financing costs, and speeds lender approvals when documentation is solid. Use the calculations and checklists here to structure cleaner deals and improve terms. When you’re ready, reach out to explore how Fidelity Funding can support your next project and move time‑sensitive financing forward.
